stating that a party to a business transaction has a duty to disclose “subsequently acquired information that he knows will make untrue or misleading a previous representation that when made was true or believed to be so”Summary of this case from McCarthy v. Ameritech Publ'g, Inc.
Nos. 89-584 and 90-84
Submitted June 6, 1990 —
Decided October 26, 1990.
Constitutional law — Commissioning of special prosecutor by General Assembly is a constitutional exercise of legislative power, when — Corporations — Ohio Securities Act — R.C. 1707.44(B)(4) and (J) prohibit only affirmative misrepresentation and do not apply to fraudulent nondisclosure — R.C. 1707.44(G) prohibits fraudulent nondisclosure where there is a duty to disclose — Individual criminally liable under R.C. 1707.44(B)(4), (G) and (J), when — Transfer of funds through Fedwire system qualifies as a "draft" or other "written instrument" as used in R.C. 1153.01 — Court may order defendant to pay restitution for financial damages pursuant to R.C. 2929.11 — Commission of unauthorized acts in violation of R.C. 1153.01 is a "theft offense" within meaning of R.C. 2913.01(K)(3) — Any violation of R.C. 1707.44(B)(4), 1707.44(G) or 1707.44(J) is a "theft offense" within the meaning of R.C. 2913.01(K)(3).
O.Jur 3d Constitutional Law §§ 284, 325.
1. The commissioning of a special prosecutor is a constitutional exercise of legislative power when the General Assembly has conferred the powers of appointment, removal and supervision on the state Attorney General.
O.Jur 3d Investment Securities § 159.
2. R.C. 1707.44(B)(4) and (J) prohibit only affirmative misrepresentation; they do not apply to fraudulent nondisclosure.
3. R.C. 1707.44(G) prohibits not only affirmative misrepresentation, but also fraudulent nondisclosure where there is a duty to disclose. However, a defendant is not entitled to a jury instruction on nondisclosure and duty to disclose unless the state's case is premised on nondisclosure.
4. Under R.C. 1707.44(B)(4), (G), and (J), a person is criminally liable if he represents facts to be different than he should have known them to be if he had exercised reasonable diligence to ascertain the facts prior to the commission of the offense. ( State v. Walsh, 66 Ohio App.2d 85, 95-96, 20 O.O. 3d 178, 184-185, 420 N.E.2d 1013, 1020, applied and followed; R.C. 1707.29, construed.)
O.Jur 3d Criminal Law §§ 2410, 2414.
5. The transfer of funds through the Fedwire system qualifies as a "draft" or other "written instrument" as those terms are used in R.C. 1153.01.
O.Jur 3d Criminal Law §§ 415, 417.
6. A court may order a defendant to pay restitution for financial damages pursuant to R.C. 2929.11.
APPEALS and CROSS-APPEAL from the Court of Appeals for Hamilton County, Nos. C-870222 and C-880072.
On December 13, 1985, defendant-appellant, Marvin L. Warner, and two former Home State Savings Bank ("Home State") presidents, David J. Schiebel and Burton M. Bongard, were indicted and charged with numerous felonies arising from Home State's dealings with ESM Government Securities, Inc. ("ESM"). The amended indictment charged Warner with forty-two counts of misapplication of funds and forty-one counts of unauthorized acts in violation of R.C. 1153.01. Further, Warner was indicted on four counts of securities fraud in violation of R.C. 1707.44(B)(4), 1707.44(G), 1707.44(D), 1707.44(F) and former 1708.05 (as now codified in R.C. 1707.44[J]). Of the eighty-eight counts in the amended indictment, counts eighty-four and eighty-eight were dismissed by the trial court. On March 2, 1987, Warner was convicted on six counts of unauthorized acts and three counts of securities fraud, which included violations of R.C. 1707.44(B)(4), 1707.44(G) and 1707.44(J). On March 30, 1987, Warner was sentenced to ten and one-half years of incarceration, seven of which were suspended, and ordered to pay restitution in the amount of $22,000,000 and costs of $250,000. The pertinent facts to this appeal are set forth below.
The court of appeals vacated the $250,000 costs of prosecution assessed against Warner. The court found that the award was based on a "statement of costs" submitted by the prosecution which was not certified by the clerk of the court of common pleas pursuant to R.C. 2949.14. Since the state has not appealed this judgment ordering a remand on the issue of costs, we will not address the merits of whether R.C. 2949.14 requires certification of the bill of costs before the trial court's order is valid. Nevertheless, because we reinstate Warner's conviction, we note that on remand from the court of appeals to the trial court the prosecution may resubmit its statement of costs.
Home State was a state-chartered, privately insured savings and loan association headquartered in Cincinnati, Ohio. Home State was regulated by the Ohio Division of Savings and Loan Associations ("ODSLA") and the Ohio Deposit Guarantee Fund ("ODGF"), a private insurance fund to which Home State belonged. The ODSLA and the ODGF cooperated in regulating member institutions such as Home State.
The controlling shareholder of Home State was Warner. Warner also was responsible for selecting both Bongard and Schiebel to serve as Home State's presidents. Moreover, it seems Warner selected Home State's board of directors.
Home State's collapse began in the spring of 1977, when Warner met Ronnie Ewton, the chairman of the board of ESM. ESM, of Fort Lauderdale, Florida, was principally involved in trading governmental securities and entering into repurchase transactions ("repos") using government securities as collateral. In 1977, Home State had ESM serve as its primary broker in its purchases and sales of government securities and in its investments in reverse repurchase agreements.
A repurchase agreement is similar to a collateralized loan, with the security subject to repurchase pledged as collateral. The repurchase agreements between Home State and ESM were of two types. In the first type of transaction, Home State "sold" securities in its investment portfolio to ESM, subject to Home State's obligation to repurchase and ESM's obligation to convey the securities at a later date for a specified price. The funds paid by ESM to Home State for the securities in effect constituted a loan to Home State from ESM, with the securities pledged by Home State serving as collateral. Home State periodically paid interest on the borrowed funds and received the coupon interest paid on the securities. In the second type of transaction, Home State purchased securities at a discounted price, and ESM simultaneously extended to Home State a loan, collateralized by the securities purchased. Again, Home State agreed to repurchase and ESM agreed to reconvey the securities at a later date, and Home State's interest payment came due on that date. In both types of transaction, the security subject to repurchase passed into ESM's possession for the term of the repurchase agreement and could be sold by ESM to third parties under an additional repurchase agreement.
Whether a transaction is characterized as a repurchase agreement or a reverse repurchase agreement depends on whether the transaction is viewed from the perspective of the party supplying funds or the party acquiring funds. Viewed from Home State's perspective, the transactions were reverse repurchase agreements because Home State was "selling" securities and "borrowing" funds rather than "buying" securities and "lending" funds.
Beginning in 1980 and continuing through February 1985, Home State entered into a series of extremely large repurchase transactions ( i.e., "leveraged arbitrages") with ESM. In these transactions, Home State, rather than pledging its own portfolio securities to support a "loan," relied on ESM to finance and purchase for Home State government securities worth hundreds of millions of dollars. The government securities Home State purchased with funds borrowed from ESM were placed under ESM's exclusive custody as collateral for the duration of the leveraged arbitrage, which was typically one year.
The amount of collateral Home State pledged to ESM was exceedingly large in relation to the amount Home State borrowed from ESM. The collateralization rate, i.e., the ratio of market value of collateral pledged to the amount borrowed, for repurchase transactions should normally have been, according to industry standards, no more than one hundred five percent for treasury obligations and no more than one hundred ten percent for agency obligations. However, between 1980 and 1983, the collateralization rates for Home State's transactions were as high as two hundred thirty-eight percent. Further, between February 1980 and 1985, Home State's repo loan balance with ESM ranged from $80,000,000 to $800,000,000. Each of these transactions increased the risk of loss to Home State. The difference between the market value of the collateral Home State pledged to ESM and the amount Home State borrowed from ESM was the amount Home State would lose should ESM be unable to redeliver the securities at the end of the transaction. The amount placed at risk by the overcollateralization was the functional and financial equivalent of interest free, unsecured loans from Home State to ESM.
A "day trade" is the sale of a security made prior to the date that the purchase price of the security is required to be paid or settled.
By 1982, the extent and nature of Home State's involvement with ESM prompted concern and criticism by ODGF and ODSLA. A 1982 report of an examination of Home State conducted by ODSLA criticized Home State's excessive overcollateralization of its repurchase agreements with ESM and questioned the association's unusual success in day-trading activity. In ODSLA's report, the examiner characterized Home State's excessive overcollateralization of its repurchase agreements as "an unsafe and unsound practice" which "pose[d] a serious risk to * * * [Home State]." The examiner noted that national examining guidelines consider as unacceptable overcollateralization in excess of one hundred five percent of repurchase transactions involving government obligations or in excess of one hundred ten percent on repurchase transactions involving Government National Mortgage Association securities ("GNMAs" or "Ginnie Maes"). Nevertheless, the average collateralization rate of Home State's repo portfolio with ESM was 211.2 percent. The market value of all Home State securities assigned to ESM as of late June 1982 was more than twice the amount of the funds that Home State had borrowed on those securities. The ODSLA report warned:
"Consequently, * * * [Home State] is vulnerable to a potential loss of about $125 million on these securities under repo agreements, should ESM be unable for any reason to redeliver the securities upon expiration of the repo agreements. * * * [Home State's] net worth is about $12 million and ESM's net worth is less than $15 million * * *.
"Such excessive overcollateralization, as herein delineated, poses a serious risk to * * * [Home State], and must be considered an unsafe and unsound practice. ***
"* * *
"* * * [Home State's] depositors, as a result of these repo transactions alone, would be confronted with possible losses of more than ten times the parent company's $12 million loss. Such losses would exceed 25 percent of the depositors' savings capital and almost twice the assets of the Ohio Deposit Guarantee Fund."
The report concluded that the income generated by these repo transactions did not justify the tremendous risk to Home State, its depositors and the ODGF.
The ODGF agreed with ODSLA's conclusions regarding the tremendous risk created by the ESM transactions and, beginning in 1982, issued a series of directives instructing Home State to reduce its involvement with ESM. As illustrated in a letter to Schiebel dated June 2, 1982, the ODGF wrote:
"There is no question, in our minds, that the risk involved in * * * [these transactions] far exceeds any income that can be derived from it. The potential risk exposure not only puts Home State at risk, but the Fund as well. To burden the Fund and its membership with such a risk is, in our opinion, imprudent and unfair."
Finally, in response to the 1982 state examination report, which had noted the increase in Home State's involvement with ESM, the ODGF sent another letter to Home State dated February 25, 1983, which read in pertinent part:
"* * * We are most concerned with the extreme amount of overcollateralization of the reverse repo (borrowed money) with ESM Government Securities. As of June 30, 1982, the Association has borrowed money from ESM of $83.8 million and collateral assigned aggregating a market value of $177.1 million, which is $93.3 million in excess or a voluminous 211.2% of the amount borrowed. As of January 31, 1983, the amount of borrowed money is still $80.5 million and the over-collateralization continues at approximately the same level. In addition, national examining guidelines consider as unacceptable all cases of over-collateralization in excess of 105% of the market values for U.S. government obligations and 110% for Ginnie Mae securities.
"This substantial over-collateralization of the borrowed money to ESM is an unsafe and unsound practice, and is completely unacceptable to the Ohio Deposit Guarantee Fund as it should be to you. This potential risk to Home State and the Fund cannot be permitted to continue.
"We direct you to reduce the market value of Home State's collateral to an amount ranging from 105 to 110% of the amount borrowed from ESM. This reduction must occur as soon as possible, but in no event later than the present term of the reverse repos which, we understand, is no later than June 30, 1983. * * *
"Please forward to us, within thirty (30) days, a copy of your Board Resolution showing compliance with the above directives. The Resolution must be signed by each Director and made a part of the Minutes. * * *" (Emphasis sic.)
At an April 28, 1983 meeting, the Home State board of directors passed a resolution expressly limiting the collateralization rates to prevent the risk of loss on Home State's repurchase transactions. The resolution stated: "RESOLVED that the Company [Home State] comply with the February 25, 1983 letter from the Ohio Deposit Guarantee Fund. This letter was transmitted by Charles Mayleben, Vice President in Charge of Supervision." Both Schiebel and Bongard were among the five board members who signed the resolution. Two of the outside directors, Robert E. Braun and Arthur C. Elliott, testified that this resolution was never modified or rescinded, and that the board never gave anyone authority to act contrary to its terms. Thus, the board expected full compliance with its resolution.
Before the ODGF's demand for the board resolution was acted upon, Warner and Home State personnel reviewed a $700,000,000 proposal from ESM at an April 13, 1983 meeting. The proposal consisted of a year-long leveraged arbitrage in which Home State would purchase approximately $700,000,000 of thirty-year GNMAs, and simultaneously pledge those securities to ESM in exchange for financing the purchase. This proposal also called for Home State to take a short position in its futures market to hedge against potential market effects.
As the state notes in its brief, the hedge was designed to protect Home State only against fluctuations in the market price of the $300,000,000 in GNMAs and the $400,000,000 in treasury notes Home State was purchasing from ESM through leveraged arbitrages. The hedge did not protect Home State against the huge risk of loss created by its overcollateralization with ESM. Thus, regardless of the amount of funds Home State received or was required to pay with respect to the futures market, Home State's enormous risk of loss with ESM stayed constant.
Home State approved a repurchase proposal pursuant to which it ultimately purchased $300,000,000 in GNMAs and $400,000,000 in five-year United States treasury notes and pledged the securities to ESM under a one-year repurchase agreement. The proposal included a matching GNMA futures transaction as a hedge against the risk that, at the end of the repurchase term, an increase in market interest rates would reduce the value of the securities below cost. Because the value of the government securities was subject to change with changing market interest rates, either party was entitled to make "margin calls" on the other party every thirty days to maintain the desired percentage of collateralization. Warner invested $100,000,000 in an identical repurchase agreement. Although the transaction represented over one hundred percent of Home State's assets, it was never brought to the attention of Home State's board of directors for approval. Instead, both the regulators and the board were led to believe that Home State would substantially reduce its involvement with ESM in the spring of 1983 as per the board's resolution.
Beginning on May 31, 1983, ESM made its first margin call on Home State. Margin calls continued through October 14, 1983, and Home State responded with forty-one payments to ESM which totalled in excess of $114,000,000. Although the repurchase agreement permitted margin calls in either direction in relation to fluctuations in the market interest rates, Home State made no margin calls on ESM during this period, although market conditions at times would have justified them. Frequently, Home State personnel claimed that they could not even find sufficient funds to meet the multi-million dollar payments to ESM required by the margin calls. Therefore, on some occasions, Home State pledged additional securities to ESM to raise funds to make the payments. Each of these payments violated the April 1983 resolution of the board and created a greater risk of loss to Home State.
In June 1983, the ODSLA examiner who had previously prepared the 1982 examination report returned to Home State to review the status of the association's repurchase agreements. The examiner noted in his status report that collateralization of the repurchase agreements had been substantially reduced, from $125,000,000 to $55,000,000, although he found that Home State's exposure to loss was still substantial because collateralization still exceeded the association's net worth. He later testified that the risk of loss was not reduced by the hedge, which merely protected against interest rate fluctuations. The ODGF reviewed the ODSLA status report. In correspondence to Home State on August 9, 1983, the ODGF noted that the report disclosed collateralization of the April 13, 1983 repurchase agreement in excess of ODGF directives and questioned whether Home State's directors, when presented with the transaction, had been made aware that the continuing transaction violated the April 1983 board resolution.
By August 1983, apparently Warner had become concerned over the April 1983 repurchase agreements. To get a detailed update on the market losses in his personal account and Home State's position with ESM, Warner called a meeting attended by Home State officers. At the meeting, they discussed the extent of Home State's excessive collateralization and the fact that Home State was beyond the one hundred five and one hundred ten percent limits. Gerald Stephens presented worksheets to Warner which evidenced that Home State's repurchase agreements were over-collateralized by $32,500,000 over the guidelines and that Home State had at risk $73,000,000 as a result of the margin payments.
Warner then called a second meeting with officers of Home State on August 29, 1983. At this meeting, Warner instructed Home State that his approval was necessary for future payments to ESM. Following this meeting, Home State sent Warner written "margin memos," which documented Warner's approval for sending additional Home State funds to ESM. Subsequently, six more transfers totalling $12,200,000 were sent to ESM; these transfers represented the six unauthorized acts of which Warner was convicted at trial.
The following facts relate to the three counts of misrepresentation in regard to sales of securities of which Warner was convicted. Warner was also the majority shareholder of Home State Financial, Inc. ("HSFI"), the parent corporation of Home State, and Bongard and Schiebel served as officers and directors of the corporation. In 1979, HSFI had issued five-year debentures in the amount of $29,000,000 which were due October 31, 1984. However, HSFI lacked the liquidity to redeem the debt, and ODGF regulations prevented Home State from using its assets to satisfy the debt of HSFI, its parent corporation.
On January 20, 1984, HSFI's counsel filed with the Securities and Exchange Commission ("SEC") a form S-2 registration statement which proposed the registration of $30,000,000 in new debentures to be offered in exchange for the corporation's outstanding debentures and, to the extent that the outstanding debentures were not exchanged, for cash at par value. Because the SEC was concerned with the risks associated with Home State's repurchase agreements, it did not approve HSFI's proposed offering. With only two months left to satisfy the SEC and to sell enough debentures to retire the $29,000,000 debt of HSFI, Warner along with Schiebel worked on a plan to merge HSFI with Home State, thereby making Home State's assets available to pay off the debenture debt. Schiebel approached the ODGF with the merger scheme in July 1984 without mentioning the pending S-2 or the SEC's questions concerning Home State's ESM transactions. In order to avoid missing the date for redeeming the debentures, HSFI decided to merge with Home State, Home State being the surviving entity. This enabled Home State, as a bank, to issue debentures exempt from SEC registration, and use the proceeds to redeem HSFI's debentures.
On February 27, 1984, the SEC sent to HSFI its first comment letter on the S-2, focusing on the risks associated with Home State's day trades and HSFI's apparent inability to pay off the debentures because of the company's "continuous losses before equity in partially owned subsidiaries." HSFI responded to the SEC's comments by filing an amendment to the S-2 on April 13, 1984. Gary P. Kreider, a Cincinnati area attorney who was hired to assist HSFI in the SEC approval process, spoke with Warner on April 25, 1984, and explained the importance of Warner's review of the S-2. Warner agreed to review the materials and call Kreider if he had any changes.
On May 9, 1984, the SEC responded to HSFI's S-2 amendment with additional comments, focusing on Home State's anomalous transactions with ESM. HSFI filed a second amendment to the S-2 on May 25, 1984. The SEC, again not satisfied with HSFI's S-2 disclosures, issued a third comment letter on June 8, 1984. HSFI amended its S-2 a third time on July 13, 1984. The SEC issued its fourth comment letter on August 7, 1984 and inquired into the details of Home State's risk of loss in the ESM transactions. The SEC demanded a written response to its letter before any further S-2 amendments were filed. On August 24, 1984, the SEC sent a fifth comment letter which expressed extreme concern about the risk of loss to Home State if ESM went bankrupt.
The merger required approval from both the ODSLA and ODGF. Warner met with ODGF officers Donald R. Hunsche and Charles Mayleben to discuss the merger. Mayleben, who was responsible for analyzing the financial impact of the merger on Home State and the ODGF, noted that the merger would substantially reduce the net worth of the bank. Accordingly, ODGF decided not to approve the merger without a sufficient infusion of capital from Warner to make up for the resulting reduction in Home State's net worth. Warner therefore contributed real estate which, according to his appraisal, had a net value of approximately $18,000,000. By virtue of the merger, Warner traded an $18,000,000 capital investment for the right to use Home State funds to pay off HSFI's $29,000,000 debenture debt.
The ODGF agreed to the merger subject to certain conditions negotiated with Warner. Warner, however, refused to guarantee the net worth of the merged entity and refused to become a director of Home State.
To secure expedited approval for the merger, Warner called the superintendent of ODSLA, Charles Lawrence Huddleston, to insist that the merger be approved. On August 27, 1984, Huddleston agreed to approve the merger, based upon Warner's promise to provide ODSLA with all information it requested, including audited financial statements of the merged entity, opinions from counsel on the tax consequences and accounting treatment of the merger, and Warner's personal financial statement (since he had guaranteed the sale price of the real estate). At no time during these merger discussions was ODSLA or ODGF told of the difficulty HSFI was having in obtaining SEC approval of the S-2 because of Home State's relationship with ESM. Both Mayleben and Huddleston testified that information regarding the SEC's continuing questions about the ESM transactions would have affected their consideration of the requested merger by Warner.
Following the merger, Home State sold new debentures by use of a four-page offering circular which incorporated by reference HSFI's 10-K and 10-Q filings. (As an issuer of publicly held securities, HSFI had been required to file with the SEC annual 10-K and quarterly 10-Q reports disclosing the financial condition and business relationship of HSFI and its subsidiaries, including Home State.) The offering circular, dated September 25, 1984, contained a general description of the debentures along with a two-page unaudited financial statement supposedly representing the true financial condition of Home State on a pro forma basis as of June 30, 1984. No reference to "ESM" appeared anywhere on the offering circular.
Warner was involved in drafting the offering circular. He reviewed and revised the initial draft and continually made changes until the circular was mailed on or about Friday, September 28, 1984. Home State's auditors never issued an opinion on the financial statements in the offering circular.
Home State's assets were overvalued in the offering circular's financial statements. Specifically, the "Loans and Other Receivables, net" assets were valued at $674,863,421 in the offering circular, although their true value was at least $5,000,000 less than this amount.
In the offering circular, Home State reported, via Warner, that its net worth using generally accepted accounting principles ("GAAP") was $3,707,463, while its net worth using regulatory reporting ("RR") was $21,752,176. This difference was attributed to the listing of Warner's real estate contributions to Home State (see footnote 6) under the RR side of the balance sheet at their purported fair market value. At trial, the evidence indicated that the inclusion of the real estate at fair market value on the offering circular financial statement was improper under RR absent the approval of the ODSLA. No ODSLA approval was ever given to Home State.
As of June 30, 1984, the date of the balance sheet in the offering circular, Home State's securities pledged to ESM had a fair market value $26,744,818 less than the value stated in the balance sheet. Warner knew of this discrepancy because he had received copies of reports which contained this information. Further, Warner also knew from his review of the S-2 that the S-2 financial statements contained footnotes reflecting the market value of these securities.
The 10-K and 10-Q reports contained several misstatements regarding ESM and Home State's relationship. The reports stated that ESM and Home State had no continuing agreements in regard to brokerage functions; that margin calls were made in accordance with fluctuations in the market; that Home State's day-trading successes were due to Home State management's ability to assess the market; and that Home State dealt with ESM on an agency basis, thereby minimizing Home State's risk of loss if ESM went bankrupt. None of these representations was true. The S-2 and its first amendment reviewed by Warner contained the same misrepresentations regarding Home State's "arm's length" dealings with ESM.
On January 21, 1985, Ewton, ESM's chairman, revealed to Stephen Arky, who was both Warner's son-in-law and outside legal counsel for ESM, that ESM had sustained massive losses. Arky conveyed this information to Warner, who then contacted Ewton and requested that he be apprised of ESM's situation. Warner then closed his personal account with ESM on January 28, 1985, and transferred his funds to financial institutions unrelated to Home State. On February 4, 1985, at Warner's request, Schiebel circulated a memorandum to the executive staff of Home State, demanding that no more memoranda be sent directly to Warner.
On February 26, 1985, Schiebel advised Home State's board of directors of his failed attempts to obtain from ESM an audited financial statement for 1984 and proposed that he visit ESM to resolve the matter. When Schiebel returned from his visit, he reported that ESM's audited financial statements had been falsified for years.
On March 4, 1985, ESM filed a petition in bankruptcy, and it was publicly disclosed that ESM had suffered $300,000,000 in losses, which it had been concealing in false financial statements. At this time, Home State had approximately $140,000,000 in government securities at risk under repurchase agreements with ESM, and the threatened losses from ESM's bankruptcy exceeded the assets of the ODGF. On March 8, 1985, after an informal meeting of the board of directors, Home State closed. A week later, the Governor of Ohio closed all ODGF-insured member institutions. Consequently, indictments against Warner, Schiebel and Bongard followed.
Before trial, Warner moved for a change of venue, based on the potential effects of pretrial publicity on the jury. The motion was overruled. Further, the trial court ruled that depositors whose funds had been frozen at ODGF-member institutions other than Home State would not be summarily disqualified from service as jurors. The trial court did agree to exclude from the jury any depositor or debenture holder of Home State, as they were victims of the alleged crimes.
Voir dire commenced on Monday, November 17, 1986. Altogether, seventy prospective jurors for the panel were interviewed by counsel for the parties. In accordance with the court's prior ruling, any prospective juror who himself had or whose relatives had deposits in Home State was excluded.
After a three and one-half month trial, the jury rendered a guilty verdict on the counts stated above on March 2, 1987. Warner was sentenced to one and one-half years on counts seventy-two, seventy-four, seventy-six, seventy-eight, eighty and eighty-two, consecutive to each other. On counts eighty-three, eighty-five, and eighty-six, Warner was sentenced to one and one-half years, concurrent to each other, consecutive to the previously imposed sentence. Additionally, the trial court ordered Warner to pay restitution in the amount of $22,000,000, and costs amounting to $250,000.
On March 16, 1987, Warner filed a motion for a new trial. In this motion, Warner reasserted his challenge on the issue of venue in Hamilton County, Ohio. Also, Warner claimed jurors had been given a written charge which defense counsel had not been permitted to examine or copy, and that those instructions varied from the oral charge. Furthermore, Warner claimed the convictions regarding the unauthorized acts differed materially from the indictment, thereby denying due process of law under the Ohio and United States Constitutions. There was no allegation of newly discovered evidence or juror misconduct as a basis for this motion for new trial.
On April 20, 1987, Warner moved for leave to file a second motion for a new trial, outside the fourteen-day limit provided in Crim. R. 33(B), and filed a motion for new trial based on "newly discovered" evidence relating to the misconduct of a juror. The motions were predicated on Crim. R. 33(A)(1), (2) and (6). The trial court overruled Warner's motion for leave to file motion for a new trial and for new trial based on juror misconduct.
Warner filed two appeals in the court of appeals, Nos. C-870222 and C-880072. On November 15, 1989, the court of appeals reversed and remanded Warner's conviction and sentence in case No. C-870222. The court decided that the trial court had committed prejudicial error in the following actions: denying Warner's challenge for cause of juror Beth Statt, granting the state's motion to amend the indictment, denying Warner's motion for acquittal on the charges of unauthorized acts, granting the state's motion to correct the record, allowing the constable's ex parte delivery of written instructions to the jury, failing to properly instruct the jury on a duty to disclose regarding the securities counts, ordering restitution without a sufficient evidentiary fundament, and imposing a judgment of costs which was not supported by a properly certified bill of costs pursuant to R.C. 2949.14. Thus, the court of appeals reversed and remanded the six counts of unauthorized acts to the trial court with instructions that Warner be discharged with respect to these counts. Also, the court reversed the judgments on the three securities counts and remanded them to the trial court for further proceedings. Further the court of appeals in case No. C-880072 reversed the trial court's denial of Warner's motion for leave to file a motion for a new trial. The state filed a timely appeal from both judgments of the court of appeals and Warner has filed a notice of cross-appeal on issues decided adversely in case No. C-870222.
These causes are before the court upon the allowance of motions and cross-motion for leave to appeal.
Lawrence A. Kane, Jr., special prosecutor, Mark A. Vander Laan, Carl J. Stich, Jr., Kenneth S. Resnick, Paul R. Mattingly and M. Gabrielle Hils, for appellant and cross-appellee.
Miller, Cassidy, Larroca Lewin, William H. Jeffress, Jr., R. Stan Mortenson and Julia E. Guttman; Lawrence Herman, Louis A. Jacobs and Robert R. Hastings, Jr., for appellee and cross-appellant.
Because Warner and Schiebel were tried together, numerous issues presented on appeal by the state and on cross-appeal by the defendants are intertwined. To avoid duplication, we have resolved issues common to both defendants in either the instant case or State v. Schiebel (1990), 55 Ohio St.3d 71, 564 N.E.2d 54.
In case No. 89-584, the issues are whether there was clear and convincing evidence that Warner was unavoidably prevented from timely filing his motion for a new trial, and whether the aliunde rule incorporated into Evid. R. 606(B) was violated. For the reasons expressed in State v. Schiebel, supra, we hold that the court of appeals erred in substituting its judgment for that of the trial court. Thus, the judgment of the court of appeals is reversed.
90-84 I Special Prosecutor
On cross-appeal, Warner's first proposition of law maintains that the appointment of the special prosecutor violated the principle of separation of powers embodied in the Ohio Constitution. Defendant claims that the legislation creating the special prosecutor in this case compelled the special prosecutor to act in a particular manner and, therefore, the General Assembly, not the Governor, directed the substance of the special prosecutor's duties. Further, defendant claims that the legislation unconstitutionally divested the executive department of its absolute discretion to decide whether to investigate and prosecute a particular matter.
As a preliminary issue we note, as did the court of appeals, that both defendants waived the issue of the constitutionality of the office of special prosecutor as established by Am. S.B. No. 147 by not challenging the legislation at trial. However, due to the importance of the legislation and its effects on the parties, we will examine the merits of this issue.
In response to the collapse of Home State and other Ohio savings and loan institutions, the General Assembly promulgated Am. S.B. No. 147 ("the Act"), which "[r]equire[d] that the special prosecutor appointed under S.B. 119 of the 116th General Assembly to investigate and prosecute any criminal violations relating to the closing of the Home State Savings Bank [and] also investigate and prosecute criminal violations by any public official or other person relating to financial losses incurred by any municipal corporation as a result of transactions with E.S.M. Government Securities, Inc." Committee Comment to Am. S.B. No. 147. The purpose behind the Act was to require the Ohio Attorney General to appoint a special prosecutor to investigate and prosecute criminal violations committed in connection with events leading to the naming of a conservator for Home State. Id. The special prosecutor was commissioned, through Am. S.B. No. 134, with the same powers county prosecuting attorneys have under R.C. 2939.10. Id. at 1-2.
Initially, the General Assembly promulgated Am. Sub. S.B. No. 119 to deal with the crisis surrounding the Home State failure. 141 Ohio Laws, Part I, 300. Later, the legislation was amended in Am. Sub. S.B. No. 134, 141 Ohio Laws, Part I, 350, and Am. S.B. No. 147, 141 Ohio Laws, Part I, 387. In regard to the special prosecutor's power, Section 5 of Am. Sub. S.B. No. 119, as amended in Am. Sub. S.B. No. 134 and Am. S.B. No. 147, now provides:
"A special prosecutor shall be appointed by the attorney general to investigate and prosecute any criminal violations that may have been committed in connection with any events and circumstances that caused any savings and loan association to be placed in the possession of a conservator as of March 15, 1985, and any criminal activity by any depositor, investor, director, officer, or employee of any savings and loan association, any unlawful activity in the operation of any savings and loan association, or any unlawful activity by any state officer or employee in connection with the regulation, examination, inspection, or operation of any savings and loan association or any deposit guaranty fund or any person with whom an association had any contractual relationship.
"The special prosecutor also shall investigate and prosecute any criminal violations by any public official or any other person that may have been committed in connection with any events and circumstances that caused any municipal corporation in this state to suffer substantial financial losses as a result of transactions with E.S.M. Government Securities, Inc., of Fort Lauderdale, Florida, for which a receiver was appointed on March 4, 1985. The special prosecutor also may investigate any other conduct by a public official or any other person in connection with such transactions involving a municipal corporation that likely would give rise to civil liability. * * *
"The special prosecutor appointed pursuant to this section has the authority of special counsel designated by the attorney general, as set forth in section 2939.10 of the Revised Code.
"In carrying out his duties under this section, the special prosecutor shall have the power to direct the clerk of any court of common pleas within the state to issue any subpoena or similar process that the special prosecutor considers necessary or appropriate to the conduct of his investigation. A clerk of court who is directed to issue any such subpoena or similar process by the special prosecutor promptly shall issue the subpoena or similar process. Testimony and documents compelled by such subpoena or similar process shall be delivered in private, and only the witness subpoenaed, the witness' counsel, the special prosecutor, members of the special prosecutor's staff, and, for the purpose of taking the evidence, a stenographer or operator of a recording device may be present during the giving of any testimony or the production of any documents pursuant to the subpoena or similar process. Any testimony or documents obtained through use of a subpoena or similar process issued pursuant to this section shall be used by the special prosecutor or his staff only in the performance of the duties of the special prosecutor. The powers herein enumerated shall be in addition to any other powers the special prosecutor has under other provisions of the Revised Code and the Ohio Rules of Criminal Procedure, and shall terminate upon the special prosecutor's completion of his duties under this section. This section shall not preclude a person charged with any offense from exercising any existing right of access to any testimony or documents obtained pursuant to this section.
"Notwithstanding the restrictions on divulging information contained in Chapter 1155. of the Revised Code, the special prosecutor appointed under this section may utilize his powers and authority granted under this section to review and make copies of any information relevant to his investigation under this section that the superintendent of building and loan associations, or any of his deputies, assistants, clerks, or examiners have obtained in or as a result of an examination or by reason of their official positions, and the superintendent, and his deputies, assistants, clerks, or examiners shall provide the special prosecutor with any such information requested in accordance with this section." 141 Ohio Laws, Part I, 387-389.
R.C. 2939.10 provides, in part:
"* * * In all matters or cases which the attorney general is required to investigate or prosecute by the governor or general assembly, or which a special prosecutor is required by section 177.03 of the Revised Code to investigate and prosecute, the attorney general or the special prosecutor, respectively, shall have and exercise any or all rights, privileges, and powers of prosecuting attorneys, and any assistant or special counsel designated by the attorney general or special prosecutor for that purpose, has the same authority. Proceedings in relation to such matters or cases are under the exclusive supervision and control of the attorney general or the special prosecutor."
We begin this analysis with the presumption that the Act is constitutional, and it will not be declared unconstitutional unless it "appear[s] beyond a reasonable doubt that the legislation and constitutional provisions are clearly incompatible." State, ex rel. Dickman, v. Defenbacher (1955), 164 Ohio St. 142, 57 O.O. 134, 128 N.E.2d 59, paragraph one of the syllabus; State, ex rel. Jackman, v. Cuyahoga Cty. Court of Common Pleas (1967), 9 Ohio St.2d 159, 161, 38 O.O. 2d 404, 405, 224 N.E.2d 906, 908-909 ("* * * when an enactment of the General Assembly is challenged, the challenger must overcome a strong presumption of constitutionality"). Although the federal Constitution is a grant of power to the federal Congress, the state Constitution is primarily a limitation on legislative power of the General Assembly; therefore, the General Assembly may pass any law unless it is specifically prohibited by the state or federal Constitutions. Jackman, supra, at 161-162, 38 O.O. 2d at 405, 224 N.E.2d at 909.
See, further, State, ex rel. [Poe], v. Jones (1894), 51 Ohio St. 492, 503-504, 37 N.E. 945, 948, where this court analyzed the legislative power:
"In determining whether an act of the legislature is or is not in conflict with the constitution, it is a settled rule, that the presumption is in favor of the validity of the law. The legislative power of the state is vested in the general assembly, and whatever limitation is placed upon the exercise of that plenary grant of power must be found in a clear prohibition by the constitution. The legislative power will generally be deemed ample to authorize the enactment of a law, unless the legislative discretion has been qualified or restricted by the constitution in reference to the subject matter in question. If the constitutionality of the law is involved in doubt, that doubt must be resolved in favor of the legislative power. The power to legislate for all the requirements of civil government is the rule, while a restriction upon the exercise of that power in a particular case is the exception. * * *"
"* * * While Ohio, unlike other jurisdictions, does not have a constitutional provision specifying the concept of separation of powers, this doctrine is implicitly embedded in the entire framework of those sections of the Ohio Constitution that define the substance and scope of powers granted to the three branches of state government. See State v. Harmon (1877), 31 Ohio St. 250. See, also, State, ex rel. Bryant, v. Akron Metro. Park Dist. (1929), 120 Ohio St. 464. While no exact rule can be set forth for determining what powers of government may or may not be assigned by law to each branch, Harmon, supra, at 258, `* * * [i]t is nevertheless true, in the American theory of government, that each of the three grand divisions of the government, must be protected from encroachments by the others, so far that its integrity and independence may be preserved. * * *' Fairview v. Giffee (1905), 73 Ohio St. 183, 187."
In the case at bar, the General Assembly retained no powers of appointment, removal, supervision or review over the special prosecutor once the Act was passed. Rather, as the Act provided, the Attorney General held the power of appointment, which impliedly included the power to remove the special prosecutor and supervise or review his actions. Warner and Schiebel have failed to identify any portion of the Act which diminished the Attorney General's authority to assist or control the investigation by the special prosecutor. Instead, Warner claims that a letter dated August 6, 1985 sent to special prosecutor Lawrence A. Kane, Jr., by the Attorney General removed any control the executive branch had over the special prosecutor. The letter, specifically drafted to address Kane's compensation as special prosecutor pursuant to his appointment by the Attorney General, reserved the power to terminate the special prosecutor at any time, subject to the limitations of the March 21, 1985 appointment letter establishing his authority to complete an investigation. Although the Attorney General indicated that he would not exercise control over the office of the special prosecutor, there was no legislative mandate that he abstain. Clearly, the level of involvement by the Attorney General's office was left within the prerogative of the Attorney General and not the General Assembly. The General Assembly's involvement was limited strictly to a call for executive action. Thus, Warner's argument that the General Assembly somehow controlled the investigation by the special prosecutor is without merit. We hold that the commissioning of a special prosecutor is a constitutional exercise of legislative power when the General Assembly has conferred the powers of appointment, removal and supervision on the state Attorney General.
The letter provided with respect to the powers vested in the special prosecutor:
"You may assign any other attorney in the firm of Dinsmore and Shohl, under your supervision and control, and of qualifications similar to yours, to perform work in this matter. Both you and any person you assign will render services pursuant to this agreement as independent contractors. You are not to be regarded for any purpose as in the employment of or as employees of the Office of Attorney General, though it is acknowledged that you have been granted specific power associated with your appointment as Special Prosecutor which clothes you with and entitles you to the authority of a prosecutor or other authority as provided by Ohio law. It is acknowledged that for purposes of this appointment, Chapter 102 of the Ohio Revised Code is not applicable. This Office shall have no right to exercise any control over your office in exercising your judgment when discharging your professional responsibilities pursuant to this agreement."
The second part of Warner's discussion on the violation of the separation of powers doctrine is based on the prosecutor's power to obtain subpoenas. We reject this argument. Issuing subpoenas is a ministerial, not a judicial function. The Act mandates that the clerk of any court of common pleas, not the court itself, issue subpoenas when requested. Therefore, the special prosecutor's subpoena powers did not infringe on judicial authority. Moreover, prosecutors generally have powers similar to those conferred on the special prosecutor by the Act. For example, R.C. 2939.12 requires clerks of courts to issue subpoenas for witnesses pursuant to grand jury investigations "[w]hen required by the * * * prosecuting attorney * * *." See, also, Crim. R. 17(F) (prosecuting attorneys may request the clerk of court to issue subpoenas for attendance at a hearing or trial).
Am. S.B. No. 147, 141 Ohio Laws, Part I, 387, 388, provides with respect to the subpoena power of the special prosecutor that: "In carrying out his duties under this section, the special prosecutor shall have the power to direct the clerk of any court of common pleas within the state to issue any subpoena or similar process that the special prosecutor considers necessary or appropriate to the conduct of his investigation. A clerk of court who is directed to issue any such subpoena or similar process by the special prosecutor promptly shall issue the subpoena or similar process. * * *"
In In re Groban (1955), 164 Ohio St. 26, 57 O.O. 70, 128 N.E.2d 106, affirmed (1957), 352 U.S. 330, this court by implication upheld an Ohio law which permitted state fire marshals to subpoena witnesses to testify in privately conducted investigations. For other illustrations of the use of investigatory subpoenas, see, e.g., R.C. 103.17 (Legislative Service Commission); R.C. 119.09 (agencies subject to the Administrative Procedure Act); R.C. 4117.02 (H)(3) (State Employment Relations Board); R.C. 4121.15 (Bureau of Workers' Compensation).
Warner contends that the Act divests the courts of their inherent power to prevent abuse of process. This court has stated in instances where parties were subjected to discovery abuses that the court may issue a protective order. Jackman, supra, at 167, 38 O.O. 2d at 409, 224 N.E.2d at 912. Similarly, where a special prosecutor has abused the subpoena power, an injured party may seek a protective order from the court. See id. Absent from the record in this case is any request for a protective order regarding alleged misuse of the subpoena power by the special prosecutor. Moreover, Warner has failed to show specific instances where the special prosecutor abused the subpoena power. We are left to speculate as to what prejudice, if any, Warner may have suffered as a result of the special prosecutor's subpoena power. Warner has directed our attention to his motion to dismiss the indictment and suppress all evidence obtained directly or indirectly through the exercise of the subpoena power. Although some of the material which was the subject of the suppression motion was later introduced at trial, Warner has failed to specify how the subpoena power was misused. Therefore, Warner has not carried his burden of demonstrating reversible error.
As the Act grants the special prosecutor no contempt or other enforcement powers, the special prosecutor must resort to the court for enforcement, thereby enabling challenges to his use of the subpoena.
For the reasons cited above, we overrule Warner's first proposition of law and find no error plain or otherwise.
Warner's second proposition of law asserts that the trial court erred in not granting his pretrial motion for a change in venue. Specifically, Warner claims the fact that Hamilton County was saturated with "victims" of the alleged offenses coupled with the intense media coverage prevented a fair and impartial jury from being selected.
Crim. R. 18(B) provides for a change of venue where, "[u]pon the motion of any party or upon its own motion the court may transfer an action to any court having jurisdiction of the subject matter outside the county in which trial would otherwise be held, when it appears that a fair and impartial trial cannot be held in the court in which the action is pending." See, also, R.C. 2901.12(J). However, "[a] change of venue rests largely in the discretion of the trial court, and there are numerous cases holding that appellate courts should not disturb the trial court's ruling on a motion for change of venue in a criminal case unless it is clearly shown that the trial court has abused its discretion. * * *" State v. Fairbanks (1972), 32 Ohio St.2d 34, 37, 61 O.O. 2d 241, 243, 289 N.E.2d 352, 355, quoted in State v. Maurer (1984), 15 Ohio St.3d 239, 250, 15 OBR 379, 388-389, 473 N.E.2d 768, 780. Moreover, "[i]n the absence of a clear and manifest showing by the defendant that pretrial publicity was so pervasive and prejudicial that an attempt to seat a jury would be a vain act, and in the interest of judicial economy, convenience and [reducing] expense to the taxpayer, a good faith effort should be made to impanel a jury before the trial court grants a motion for change of venue." State v. Herring (1984), 21 Ohio App.3d 18, 21 OBR 19, 486 N.E.2d 119, syllabus. As an appellate court, we will look to the record where the issue of venue is concerned since "[t]he examination of jurors on their voir dire affords the best test as to whether prejudice exists in the community against the defendant, and where it appears that opinions as to the guilt of the defendant of those called for examination for jurors are not fixed but would yield readily to evidence, it is not error to overrule an application for a change of venue, in absence of a clear showing of an abuse of discretion." State v. Swiger (1966), 5 Ohio St.2d 151, 34 O.O. 2d 270, 214 N.E.2d 417, paragraph one of the syllabus, certiorari denied (1966), 385 U.S. 874, quoted in State v. Coleman (1989), 45 Ohio St.3d 298, 302-303, 544 N.E.2d 622, 628; State v. Thompson (1987), 33 Ohio St.3d 1, 5, 514 N.E.2d 407, 412; State v. Maurer, supra, at 250-251, 15 OBR at 389, 473 N.E.2d at 781; see, also, State v. Bayless (1976), 48 Ohio St.2d 73, 98, 2 O.O. 3d 249, 262, 357 N.E.2d 1035, 1051, vacated in part on other grounds (1978), 438 U.S. 911 (generally, "* * * a careful and searching voir dire provides the best test of whether prejudicial pretrial publicity has prevented obtaining a fair and impartial jury from the locality"); In re Application of Natl. Broadcasting Co., Inc. (C.A.D.C. 1981), 653 F.2d 609, 617 (" voir dire has long been recognized as an effective method of rooting out such bias, especially when conducted in a careful and thoroughgoing manner * * *"); United States v. Duncan (C.A.4, 1979), 598 F.2d 839, 865, certiorari denied (1979), 444 U.S. 871; Calley v. Callaway (C.A.5, 1975), 519 F.2d 184, 209, fn. 45.
Although a criminal defendant is entitled to a fair trial by a panel of impartial jurors, there is no requirement that "`* * * the jurors be totally ignorant of the facts and issues involved'" in the case. State v. Thompson, supra, at 5, 514 N.E.2d at 412, quoting Irvin v. Dowd (1961), 366 U.S. 717, 722. Therefore, the trial court is required to examine "the totality of the surrounding facts" and arrive at its "own estimate of local conditions" when determining whether to change the venue in a particular case due to pretrial publicity. Id. at 721. It would be erroneous "[t]o hold that the mere existence of any preconceived notion as to the guilt or innocence of an accused, without more, is sufficient to rebut the presumption of a prospective juror's impartiality * * *. It is sufficient if the juror can lay aside his impression or opinion and render a verdict based on the evidence presented in court. * * *" Id. at 723. As stated in Reynolds v. United States (1878), 98 U.S. 145, 156, the proper test to determine a juror's bias is "whether the nature and strength of the opinion formed are such as in law necessarily to raise the presumption of partiality. The question thus presented is one of mixed law and fact. * * *" Moreover, "[t]he affirmative of the issue is upon the challenger. Unless he shows the actual existence of such an opinion in the mind of the juror as will raise the presumption of partiality, the juror need not necessarily be set aside * * *." Id. at 157; see, also, State v. Willey (1981), 5 Ohio App.3d 86, 89, 5 OBR 200, 202-203, 449 N.E.2d 471, 474-475; State v. Marra (1985), 195 Conn. 421, 489 A.2d 350 (when requesting relief, such as a change of venue or continuance, from allegedly prejudicial effects of publicity, defendant has the burden of showing that he could not receive a fair and impartial trial).
In order to dissipate the effects of adverse pretrial publicity, the judge may continue the case until the threat abates. See State v. Fairbanks, supra, at 37, 61 O.O. 2d at 244, 289 N.E.2d at 352; State v. Maurer, supra, at 251, 15 OBR at 389, 473 N.E.2d at 781, fn. 7. Here, the court did grant Warner's motion for a continuance, allowing over four extra months for pretrial publicity to dissipate. In fact, from the date of the indictment (December 13, 1985) to the day when voir dire began (November 17, 1986) over eleven months elapsed. "That time soothes and erases is a perfectly natural phenomenon, familiar to all. * * *" Patton v. Yount (1984), 467 U.S. 1025, 1034; Irvin v. Dowd (C.A.7, 1959), 271 F.2d 552, 561 (Duffy, J., dissenting), reversed (1961), 366 U.S. 717 (a continuance should have been granted because "[t]he passage of time is a great healer," and public prejudice might have "subsid[ed]"); Beck v. Washington (1962), 369 U.S. 541, 556.
In a thorough review of the record, we have observed that the trial court conducted an extensive voir dire of seventy potential jurors over a two-week period. The transcript contains approximately two thousand eight hundred pages of voir dire. The trial judge summarized the potential adverse effects caused by the pretrial publicity by stating in response to the defendants' motion for a change of venue that:
"In regard to the change of venue, we have engaged in extensive and comprehensive voir dire over the last two weeks or more, subjecting some 70 jurors to one and a half to two and a quarter hours of questioning, sometimes resembling a rigorous cross-examination rather than voir dire.
"But, as a result of this procedure, several facts have become apparent. That the passage of time has reduced the effect of pretrial publicity upon this case. That the majority of the jurors questioned answered the questions posed to them truthfully, and those that were outwardly and openly biased or prejudiced were dismissed.
"The court granted several challenges for cause against jurors who seemingly complied with the fair and impartial test set up by the criminal rules, but who demonstrated a possible prejudice.
"The jurors assembled for the general venire in this case represent what a venire in general represent[s], what the court has observed over the last eight years as a typical array of Hamilton County petit jurors.
"The jury commissioner and the court administrator's application of local rule 8(C) did not affect the jury array to the prejudice of either the defendants or the state, and that general hardship excuses are continuances, and are granted pursuant to that rule.
"All hardship excuses granted for the specific hardships created by service in this case, almost exclusively, based on the extended time of service predicted were passed upon by the court and counsel.
"Therefore, it is the considered opinion of this court that, as a result of the exhaustive draw for a fair and impartial jury panel, [one] has been found within the venue of Hamilton County, and that the defendants' motion for change of venue is overruled, please."
The trial court's postponement of its ruling on the motion for a venue change until completion of the voir dire permitted an informed conclusion by the court as to whether pre-trial publicity would prevent a "fair and impartial trial." See Crim. R. 18(B); State v. Duerr (1982), 8 Ohio App.3d 404, 408, 8 OBR 526, 530-531, 457 N.E.2d 843, 849. The trial court's actions do not reflect an attitude which was unreasonable, arbitrary or unconscionable. Therefore, there was no abuse of discretion. Accordingly, Warner's second proposition of law is overruled.
III Juror Disqualification
In the state's first proposition of law and Warner's third proposition of law on cross-appeal, the issue is whether every potential juror should have been disqualified who had an account in any savings and loan institution that was temporarily closed by the Governor following the collapse of Home State. On the authority of State v. Schiebel, supra, at Part I of case No. 90-85, we sustain the state's first proposition of law, while overruling Warner's third proposition of law.
IV Failure to Disclose A
The state's proposition of law number five and Warner's proposition of law number twelve concern the necessity for an instruction on duty to disclose. Specifically, Warner claims that because the state's case was premised in part on fraudulent non-disclosure, he was entitled to a jury instruction that nondisclosure cannot be fraudulent absent a duty to disclose. As there is no dispute that an oral instruction on duty to disclose was given, Warner's proposition of law is premised only on the lack of written instructions. However, in State v. Schiebel, supra, at Part IIA, we reversed the court of appeals and accepted the trial court's statement, correcting the record, that written instructions on the four disputed issues, including the instruction on duty to disclose, were delivered to the jury. The premise for Warner's proposition of law twelve therefore fails, and it is overruled for that reason.
Even if the disputed written instructions had not been delivered, Warner's proposition of law twelve would be overruled for the reasons that follow.
Both Warner and Schiebel were indicted and convicted on three separate counts of securities fraud under R.C. 1707.44. Count eighty-three charged Warner and Schiebel with violating R.C. 1707.44(B)(4), which provides:
"No person shall knowingly make or cause to be made any false representation concerning a material and relevant fact, in any oral statement or in any prospectus, circular, description, application, or written statement, for any of the following purposes:
"* * *
"(4) Selling any securities in this state[.]"
In count eighty-five, both defendants were charged with violating R.C. 1707.44(J), which states:
"No person, with purpose to deceive, shall make, issue, publish, or cause to be made, issued, or published any statement or advertisement as to the value of securities, or as to alleged facts affecting the value of securities, or as to the financial condition of any issuer of securities, when such person knows that such statement or advertisement is false in any material respect."
The amended indictment alleged with respect to counts eighty-three and eighty-five that Warner, as an agent and sole shareholder of Home State, and Schiebel, as an officer and director of the bank, knowingly made or caused to be made, false representations concerning material and relevant facts in the offering circular issued by Home State for the purpose of selling securities in the state of Ohio. It further alleged that with purpose to deceive, they made, issued, published or caused to be made, issued, or published false statements as to the financial condition of Home State as an issuer of securities. These acts were alleged to have been committed when both defendants knew that such statements were false in a material respect.
As will be discussed, infra, with respect to count eighty-three, the state alleged affirmative misrepresentations rather than omissions. Specifically, in relation to count eighty-three, the state alleged in the indictment that there were false representations of material and relevant facts contained in the offering circular which included:
"A. The Pro Forma Consolidated Balance Sheet at June 30, 1984 contained in the Offering Circular stated that in the opinion of management, the Bank and subsidiaries had a combined total stockholders equity of $21,752,176 according to regulatory reporting methods as prescribed by the State of Ohio, when in fact the Defendants knew that the Bank and subsidiaries had a combined total stockholders equity substantially less than said amount.
"B. The Pro Forma Consolidated Balance Sheet at June 30, 1984 contained in the Offering Circular stated that in the opinion of management, the Bank and subsidiaries had a combined total stockholders equity of $3,707,463 according to generally accepted accounting principles, when in fact the defendants knew that the bank and subsidiaries had a combined total stockholders equity substantially less than said amount according to generally accepted accounting principles.
"C. The disclosures of the Bank's relationship with ESM and its affiliates, as contained in reports filed with the United States Securities Exchange Commission on Form 10-K for the year ended December 31, 1983 and on Form 10-Q for the six-month period ended June 30, 1984, which Forms were incorporated by reference in the Offering Circular, were false representations of material and relevant facts in that such Forms misrepresented the extraordinary level of involvement and dependency between the Bank and its affiliates and ESM, and further misrepresented the relationship of ESM and the Bank in various repurchase and reverse repurchase transactions, and further misrepresented the substantial contingent liability and attendant risk of loss to the Bank associated with its relationship with ESM and the aforementioned transactions.
"D. The disclosures of the Bank's transactions with ESM and its affiliates, as contained in reports filed with the United States Securities Exchange Commission on Form 10-K for the year ended December 31, 1983 and on Form 10-Q for the six-month period ended June 30, 1984, which Forms were incorporated by reference in the Offering Circular, were false representations of material and relevant facts. Such representations were false in that the Forms failed to disclose that transactions identified therein as contributing to the profitability of the Bank were in fact transactions about which the Ohio Division of Savings Loan Associations and the Fund had issued specific negative directives and comments and had registered serious and ongoing concerns related to the excessive and undue risk to the financial stability of the Bank created by such transactions. Such concerns and directives were material and relevant to an adequate understanding of the financial condition of the Bank."
As noted with respect to count eighty-three, count eighty-five also alleged affirmative misrepresentations in regard to the offering circular developed and distributed by the defendants. In essence, the same conduct which violated R.C. 1707.44(B)(4) also violated R.C. 1707.44(J).
The court of appeals reversed the defendants' convictions as to counts eighty-three and eighty-five, holding that written instructions concerning the duty to disclose were necessary and the trial court committed prejudicial error in failing to submit supplemental written instructions to the jury.
The state asserts that since Warner and Schiebel were charged with making only affirmative misrepresentations in violation of R.C. 1707.44(B)(4) and 1707.44(J), a duty to disclose was not an element of either offense, and that the defendants were, therefore, not entitled to have an instruction submitted to the jury on this issue.
The linchpin of Warner's argument with respect to counts eighty-three and eighty-five is that the state alleged in the indictment and bill of particulars that both defendants failed to adequately disclose relevant and material facts in the offering circular and, therefore, the state's case was premised on nondisclosure, which required a jury instruction.
Counts eighty-three and eighty-five of the amended indictment charged, in pertinent part:
"The disclosures of the Bank's transactions with ESM and its affiliates, as contained in reports filed with the United States Securities Exchange Commission on Form 10-K for the year ended December 31, 1983 and on Form 10-Q for the six-month period ended June 30, 1984, which Forms were incorporated by reference in the Offering Circular, were false representations of material and relevant facts. Such representations were false in that the Forms failed to disclose that transactions identified therein as contributing to the profitability of the Bank were in fact transactions about which the Ohio Division of Savings Loan Associations and the Fund had issued specific negative directives and comments and had registered serious and ongoing concerns related to the excessive and undue risk to the financial stability of the Bank created by such transactions. * * *"
A review of the record does not disclose an amended bill of particulars; however, the original bill of particulars stated the alleged misconduct by both Warner and Schiebel as to violations of R.C. 1707.44(B) and 1707.44(J). Thus, former count forty-two of the original indictment parallels count eighty-three of the amended indictment and count forty-four of the original indictment parallels count eighty-five of the amended indictment. The bill of particulars included separate, virtually identical paragraphs relating to Warner and Schiebel, respectively.
"2. Defendant[s] Warner [and Schiebel] misrepresented the extraordinary level of involvement and dependence between Home State and its affiliates and ESM by failure to disclose the nature of the interdependence between ESM and Home State for the economic survival of each entity; the nature of the relationship between Home State, its officers and shareholders and ESM, its officers and shareholders; the nature of the relationship of ESM and Home State in various repurchase and reverse repurchase transactions; the substantial contingent liability and attendant risk of loss to Home State associated with its relationship with ESM and the aforementioned transactions, about which defendant[s] Warner [and Schiebel] had actual knowledge based upon * * * [their] understanding of the financial condition of ESM; and the mischaracterization of the transactions with ESM which had been declared unsafe and unsound by appropriate regulatory authorities who had directed that the transactions between Home State and ESM be reduced or eliminated.
"3. Defendant[s] Warner [and Schiebel] misrepresented the relationship of ESM and Home State in various repurchase and reverse repurchase transactions by failure to adequately disclose: (1) the nature of ESM as a principal in the various repurchase and reverse repurchase transactions; and (2) the substantial financial exposure of Home State in these transactions known to defendant[s] Warner [and Schiebel] by virtue of * * * [their] understanding of ESM's financial condition; and (3) the regulatory challenges to the transactions by the State of Ohio and officials of the Ohio Deposit Guarantee Fund, including directives that the transactions should be substantially reduced or eliminated.
"4. Defendant[s] Warner [and Schiebel] misrepresented the substantial contingent liability and attendant risk of loss to Home State associated with its relationship with ESM and the aforementioned transactions by failure to disclose Home State's inability to unwind its transactions with ESM due to ESM's financial condition and Home State's reliance on income from ESM's investments in order to survive and continue its daily operations.
"5. Defendant[s] Warner [and Schiebel] made or caused to be made false representations in the Offering Circular by supervising, directing, and assisting and aiding in the preparation of the Offering Circular. Defendant[s] Warner's [and Schiebel's] participation in the preparation of the Offering Circular included * * * [their] participation in conversations and meetings with Home State's employees in which the format and contents of the Offering Circular and its transmittal letter were discussed and determined. Defendant[s] Warner [and Schiebel] also directed Home State employees in * * * [their] duties in connection with the Offering Circular and instructed them concerning changes in the Offering Circular and its transmittal letter."
Clearly, the portions of the amended indictment and bill of particulars which discuss Warner's and Schiebel's failure to disclose certain material facts only illustrate the defendants' conduct in making affirmative misrepresentations in the offering circular. The thrust of the state's case as to counts eighty-three and eighty-five was that the defendants represented to potential debenture purchasers that Home State dealt with ESM at arm's length, that ESM's margin calls on Home State were directly related to market forces, that Home State's success in day trades was the result of management's success in calculating the market, and that ESM was merely an agent in the repurchase transactions. Moreover, the state presented evidence that showed the defendants falsely represented unaudited financial statements in the offering circular to be an accurate financial account of Home State. Altogether, the affirmative misrepresentations by the defendants far outweighed any elements of nondisclosure. Obviously, when a party has made affirmative misrepresentations there will invariably also be items he has left undisclosed.
Thus, in reviewing the amended indictment and bill of particulars, we find that the state's case against Warner and Schiebel was based primarily on affirmative misrepresentations rather than nondisclosure.
Even assuming, arguendo, that the state's case was premised on the defendants' failure to disclose relevant and material information, R.C. 1707.44(B)(4) and 1707.44(J) would not require an instruction on duty to disclose. Neither R.C. 1707.44(B)(4) nor 1707.44(J) includes among possible violations the omission or nondisclosure of material facts. Instead, R.C. 1707.44(B) states that a defendant commits a violation when he or she "* * * knowingly make[s] or cause[s] to be made any false representation[s] * * *." Similarly, R.C. 1707.44(J) is triggered when a defendant has "* * * with purpose to deceive, * * * [made], issue[d], publish[ed], or cause[d] to be made, issued, or published any statement or advertisement as to the value of securities or as to alleged facts affecting the value of securities * * *." There is no language within either section which indicates that a defendant could be charged with omissions rather than affirmative misrepresentations. R.C. 1707.44(B)(4) and (J) prohibit only affirmative misrepresentation; they do not apply to fraudulent nondisclosure.
The elements of a crime must be gathered wholly from the statute. State v. Cimpritz (1953), 158 Ohio St. 490, 49 O.O. 418, 110 N.E.2d 416, paragraph two of the syllabus; Davis v. State (1877), 32 Ohio St. 24, 28. Therefore, we must presume that if the General Assembly intended that a party be held accountable for a failure to disclose under R.C. 1707.44(B)(4) or 1707.44(J), it would have included the appropriate language in the statute. See, e.g., R.C. 1707.44(D) ("No person who is an officer, director, or trustee of, or a dealer for, any issuer, and who knows such issuer to be insolvent in that the liabilities of such issuer exceed its assets, shall sell any securities of or for any such issuer, without disclosing the fact of such insolvency to the purchaser" [emphasis added]); Section 240.10b-5(b), Title 17, C.F.R. (which is similar to R.C. 1707.07[B] and 1707.07[J] and which provides that it shall be unlawful in a securities transaction "[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made not, misleading[.]" [Emphasis added.]).
The state also contends in its fifth proposition of law that a written instruction on duty to disclose was not necessary pursuant to R.C. 1707.44 (G), a violation of which was charged in count eighty-six, since only affirmative misrepresentations were averred at trial rather than defendants' failure to disclose material and relevant facts.
R.C. 1707.44(G) provides: "No person in selling securities shall knowingly engage in any act or practice which is, in sections 1707.01 to 1707.45 of the Revised Code, declared illegal, defined as fraudulent, or prohibited." The definition of "fraud" in R.C. 1707.01(J), states: "`Fraud,' `fraudulent acts,' `fraudulent practices,' or `fraudulent transactions' means anything recognized on or after July 22, 1929, as such in courts of law or equity; any device, scheme, or artifice to defraud or to obtain money or property by means of any false pretense, representation, or promise; any fictitious or pretended purchase or sale of securities; and any act, practice, transaction, or course of business relating to the sale of securities which is fraudulent or which has operated or would operate as a fraud upon the purchaser." T Taking this definition into account we shall inquire as to the scope of the duty to disclose where fraud is alleged. In Ohio, a duty to disclose was first recognized in the case of Miles v. McSwegin (1979), 58 Ohio St.2d 97, 99, 12 O.O. 3d 108, 110, 388 N.E.2d 1367, 1369. In Miles, prospective home buyers brought an action against a real estate broker and a savings and loan company alleging that the defendants concealed the presence of termites on the premises. The court held that "[o]ne of the interests protected by the law of deceit is `the interest in formulating business judgments without being misled by others * * *' into making unwise decisions which result in financial loss. * * * It is well established that an action for fraud and deceit is maintainable not only as a result of affirmative misrepresentations, but also for negative ones, such as the failure of a party to a transaction to fully disclose facts of a material nature where there exists a duty to speak." (Citations omitted.) Id. See, also, Prosser Keeton, The Law of Torts (5 Ed. 1984) 738-739, Representation and Nondisclosure, Section 106; 37 American Jurisprudence 2d (1968) 196-201, Fraud and Deceit, Sections 144 and 145; First Natl. Bank of Toledo v. Stewart Petroleum Drilling Corp. (Aug. 17, 1984), Lucas Cty. App. No. L-84-017, unreported.
Ohio courts have recognized fraud to include: (1) representation, or where there is a duty to disclose, concealment, of a matter of fact; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred; (4) with the intent of misleading another into relying upon it; (5) justifiable reliance upon the representation or concealment; and (6) a resulting injury proximately caused by the reliance. Gaines v. Preterm-Cleveland, Inc. (1987), 33 Ohio St.3d 54, 55, 514 N.E.2d 709, 712; Burr v. Stark Cty. Bd. of Commrs. (1986), 23 Ohio St.3d 69, 23 OBR 200, 491 N.E.2d 1101, paragraph two of the syllabus; Cohen v. Lamko, Inc. (1984), 10 Ohio St.3d 167, 10 OBR 500, 462 N.E.2d 407; Moore v. Fenex, Inc. (C.A.6, 1987), 809 F.2d 297, 301; Dunn Appraisal Co. v. Honeywell Information Systems, Inc. (C.A.6, 1982), 687 F.2d 877, 882.
In Chiarella v. United States (1980), 445 U.S. 222, the United States Supreme Court discussed the possible situations where a duty to disclose arises. The Chiarella court construed Section 10(b) of the Securities Exchange Act of 1934, Section 78j, Title 15, U.S. Code, in an instance where a financial printer, who was engaged by certain corporations to print corporate takeover bids, deduced the names of the target companies from documents delivered to the printer by the acquiring companies and, without disclosing his knowledge, purchased stock in the target companies and sold it immediately after the takeover attempts were made public. Id. at 224-225. In holding that the defendant was not under a duty to disclose, the Chiarella court explained:
"* * * [O]ne who fails to disclose material information prior to the consummation of a transaction commits fraud only when he is under a duty to do so. And the duty to disclose arises when one party has information `that the other [party] is entitled to know because of a fiduciary or other similar relation of trust and confidence between them.' * * *" (Footnote omitted.) Id. at 228.
Furthermore, the court noted that "[w]hen an allegation of fraud is based upon nondisclosure, there can be no fraud absent a duty to speak. * * *" Id. at 235.
There is some question as to whether an allegation of fraud requires an instruction on duty to disclose. In Miles v. McSwegin, supra, this court held that "* * * a party is under a duty to speak, and therefore liable for nondisclosure, if the party fails to exercise reasonable care to disclose a material fact which may justifiably induce another party to act or refrain from acting, and the non-disclosing party knows that the failure to disclose such information to the other party will render a prior statement or representation untrue or misleading. * * *" Id. at 100, 12 O.O. 3d at 110, 388 N.E.2d at 1369, citing 3 Restatement of the Law 2d, Torts (1965) 119, Sections 55(1) and (2).
Therefore, since nondisclosure can be a fraudulent act under Ohio law, we hold that R.C. 1707.44(G) prohibits not only affirmative misrepresentation, but also fraudulent nondisclosure where there is a duty to disclose. However, a defendant is not entitled to a jury instruction on nondisclosure and duty to disclose unless the state's case is premised on nondisclosure.
In the case sub judice, the thrust of count eighty-six of the amended indictment does not rely upon nondisclosures by Warner. Instead, it alleged that Warner had engaged in fraudulent practices by preparing an offering circular which misrepresented material and relevant facts, and did assist, supervise, direct, and aid in the sale of the securities offered by the offering circular. Essentially, the bill of particulars restates count eighty-six in the amended indictment. In describing Warner's actions, the bill of particulars states in pertinent part:
Count eighty-six of the amended indictment, as to Warner and Schiebel, provides, in pertinent part:
"(7) The Defendants
"MARVIN L. WARNER, and
"DAVID J. SCHIEBEL,
"Commencing on or about June 1, 1984 and extending through November, 1984 at the County of Hamilton, State of Ohio, in violation of Section 1707.44(G) of the Ohio Revised Code, did, in selling securities of the Bank offered by means of the Offering Circular, knowingly engage in acts or practices which were declared illegal, defined as fraudulent or prohibited in Sections 1707.01 to 1707.45 of the Revised Code, a fourth degree felony, contrary to the form of the statute in such case made and provided, and against the peace and dignity of the State of Ohio.
"(8) The Defendants knowingly engaged in acts or practices which were defined as fraudulent in Section 1701.01 of the Ohio Revised Code in that the Defendants obtained the property of purchasers of the Bank's securities by means of false representations contained in the Offering Circular. The Defendants did prepare, review, revise, supervise, direct, assist and aid in the preparation of the Offering Circular which contained misrepresentations of material and relevant facts, and did assist, supervise, direct, and aid in the sale of the securities offered by means of the Offering Circular. The use of the Offering Circular and the misrepresentations contained therein constituted an act, practice, or course of business relating to the sale of securities which was fraudulent and which operated as a fraud upon the purchasers in that the purchasers were not provided with information material and relevant to an adequate understanding of the financial condition of the Bank and to an evaluation of their investment in the Bank's securities.
"(9) Defendant DAVID J. SCHIEBEL did knowingly engage in acts or practices which are defined as fraudulent in Section 1701.01 of the Ohio Revised Code in that Defendant DAVID J. SCHIEBEL did obtain the Superintendent's and Fund's approval of the Merger by means of false disclosures and misrepresentations to the Fund and to the Superintendent concerning the existence or status of Registration Statement No. 2-88983 (the `Registration Statement') then on file with the United States Securities Exchange Commission and the difficulties encountered therewith. Defendant DAVID J. SCHIEBEL did obscure information with respect to the existence and status of the Registration Statement for the express purpose of obtaining approval of the Merger, which Merger (i) allowed the debentures identified in paragraph (2) of this Count Eighty-Six to become the direct obligations of the Bank, in circumvention of the Fund's restrictions on the payment of dividends by the Bank to its parent, thereby making the liquidity of the Bank available to pay amounts due on the debentures; (ii) avoided the necessity of further pursuit of the Registration Statement with federal and state authorities as a condition to the issue of the Bank of new debentures; (iii) allowed the issuance of debentures without registration and disclosure of information required in registration with the United States Securities Exchange Commission and the Ohio Division of Securities. The foregoing actions by Defendant DAVID J. SCHIEBEL constituted a scheme, acts or a course of business which related to the sale of securities offered by means of the Offering Circular, which was fraudulent and which operated as a fraud upon the purchasers of the Bank's securities in that the purchasers were not provided with information material and relevant to an adequate understanding of the financial condition of the Bank and to an evaluation of their investment in the Bank's securities.
"(10) The Defendants MARVIN L. WARNER, and DAVID J. SCHIEBEL in selling securities of the Bank offered by means of the Offering Circular, knowingly engaged in acts or practices which were declared illegal or prohibited in Sections 1707.44(B) * * * of the Revised Code, as described more fully in * * * [Count] Eighty-Three * * * of this Indictment."
"* * * His conduct arises from his approving the Offering Circular which contained misrepresentations concerning Home State's relationship with ESM as * * * [discussed in the indictment], and overvaluation of Home State's assets on the financial statement set forth in the Offering Circular, including overvaluation of such items as loans and receivables and real estate."
Obviously, the failure of Warner to disclose the financial condition of Home State was incidental to the affirmative misrepresentation of Home State's status alleged in the amended indictment and the bill of particulars Taken as a whole, the bill of particulars alleges only that Warner committed fraud by affirmative misrepresentations rather than by failing to disclose.
Thus, it can be seen from the allegations contained in the amended indictment and bill of particulars that any instruction regarding Warner's duty to disclose material and relevant information would have been error. Consequently, the trial court erred in giving the following oral instruction to the jury regarding the duty to disclose:
"In counts 83, 85, and 86, in regard to — fraudulent misrepresentation is when an allegation of fraud is based upon no disclosure. There can be no fraud absent a duty to speak by one charged of engaging in the fraud."
As stated in our previous discussion, any instruction on the duty to disclose, oral or written, would have been improper in this case; therefore, the trial court erred in giving the above instruction to the jury. Accordingly, we must determine whether such error was prejudicial to the defendant.
In State v. Price (1979), 60 Ohio St.2d 136, 14 O.O. 3d 379, 398 N.E.2d 772, paragraph four of the syllabus, we held that: "A single instruction to a jury may not be judged in artificial isolation but must be viewed in the context of the overall charge. ( Cupp v. Naughten, 414 U.S. 141, 147, followed.)" See, also, Vargo v. Travelers Ins. Co. (1987), 34 Ohio St.3d 27, 31, 516 N.E.2d 226, 230; State v. Coleman, supra, at 290, 525 N.E.2d at 797; cf. Lakes v. Ford (C.A.11, 1986), 779 F.2d 1578; Francis v. Franklin (1985), 471 U.S. 307. Upon review of the entire set of instructions given to the jury, it is clear that the jury was not instructed as to Warner's duty to disclose material and relevant facts in the main but, rather, it was instructed to decide whether defendant made affirmative misrepresentations as to Home State's status. Even if we were to assume that the jury was instructed that it had to determine whether defendant was under a duty to disclose, this would not have been prejudicial to the defense. As noted in our previous discussion, the defense was not entitled to such an instruction. Therefore, any oral instruction on this issue was prejudicial to the state and not to the defense. And, since the defendant was not entitled to the instruction in the first place, there would have been no prejudice even if this part of the instructions was not reduced to writing.
Accordingly, the state's fifth proposition of law is sustained, while Warner's twelfth proposition of law is overruled.
V Culpable Mental State under R.C. 1707.29 as Applied to R.C. 1707.44
In Warner's thirteenth proposition of law, defendant argues that R.C. 1707.29 creates a mandatory presumption of knowledge which violates the Due Process Clause of the Fourteenth Amendment to the United States Constitution. He alleges two errors in this vein. First, he claims that R.C. 1707.29 establishes a presumption of knowledge which relieves the state of its burden of proof on that essential element of its case against him. Second, he claims that the trial court improperly instructed the jury that under R.C. 1707.29 defendant could be presumed to have knowledge of certain facts. For the reasons that follow, we find this argument to be without merit.
Warner was convicted of three securities violations under R.C. 1707.44. All three counts contained the element of knowledge. In any prosecution brought under R.C. 1707.01 through 1707.45 (which included the counts against Warner), R.C. 1707.29 provides that "the accused shall be deemed to have had knowledge of any matter of fact, where in the exercise of reasonable diligence, he should, prior to the alleged commission of the offense in question, have secured such knowledge."
In construing the language contained in R.C. 1707.29, the court in State v. Walsh (1979), 66 Ohio App.2d 85, 95-96, 20 O.O. 3d 178, 184-185, 420 N.E.2d 1013, 1020, held that "* * * although R.C. 1707.44(G) utilizes the word `knowingly,' R.C. 1707.29 has the general effect of defining `knowingly' more in terms of `negligently' as defined by R.C. 2901.22(D), rather than `knowingly' as defined by R.C. 2901.22(B). Thus, for the purpose of fraudulent acts in selling securities in violation of R.C. 1707.44(G), a person is criminally liable if he represents facts to be different than he should have known them to be if he had exercised reasonable diligence to ascertain the facts. On the other hand, of necessity, a good-faith belief in the existence of the fact as represented creates no criminal liability, since one cannot have a good-faith belief in facts which he should know to be otherwise had he exercised reasonable diligence. Good faith necessarily implies the exercise of reasonable diligence to ascertain the true state of facts.
"There remains, however, a very important issue for the jury to determine, i.e., whether the defendant should have learned the true nature of the facts in the exercise of reasonable diligence. First, it must be ascertained whether defendant exercised reasonable diligence to ascertain the true state of facts; and, second, it must be determined whether he should, not merely could, have learned of the true facts in the exercise of reasonable diligence. This is not a situation where one fact is presumed to exist because of the existence of another; but, instead, in the context of this case, the jury is required to make a factual determination of whether the defendant represented the facts to be different than he should have known them to be, in the exercise of reasonable diligence. This in no way infringes upon the presumption of innocence, since the state is required to prove, beyond a reasonable doubt, that the defendant in the exercise of reasonable diligence should have known the facts to be different than he represented them to be. Actually, there is little difference between this standard and the standard that is ordinarily used, since it is permissible to infer that a defendant has knowledge of facts which he should have known under the circumstances involved. * * *"
We are persuaded by the Walsh rationale which interprets the legislative intent of R.C. 1707.29 to, in effect, define the knowledge requirement for certain violations of Ohio's Securities Act, R.C. Chapter 1707. Thus, instead of creating a presumption as alleged by Warner, R.C. 1707.29 merely sets forth what the term "knowledge" encompasses for purposes of criminal liability under R.C. Chapter 1707. Therefore, we hold that under R.C. 1707.44 (B)(4), (G), and (J), a person is criminally liable if he represents facts to be different than he should have known them to be if he had exercised reasonable diligence to ascertain the facts prior to the commission of the offense.
In the case sub judice, after reciting R.C. 1707.29, the trial court instructed the jury as follows:
"The following is an explanation of the application of Section 1707.29. You as the jury must determine whether or not the defendant or the defendants should have learned the true nature of the facts represented by them in conjunction with the sale of securities in the exercise of reasonable diligence.
"First, it must be ascertained whether the defendant or defendants exercised reasonable diligence to determine the true state of facts; and, second, it must be determined whether he or they should, not merely could, have learned of the true facts in the exercise of reasonable diligence. It is your duty to determine if the defendant or the defendants represented the facts to be different than he or they should have known them to be in the exercise of reasonable diligence.
"Reasonable diligence is due diligence of a character exercised by a fair and ordinarily prudent person under the same or similar circumstances.
"In other words, a defendant or the defendants knew of the existence of material and relevant facts if, by the exercise of reasonable diligence, he or they should have known of their existence.
"Thus, for the purposes of an application of 1707.29 to the 1707.01 to 1707.45 alleged violations, a person is criminally liable if he represents facts to be differerent [ sic] than he should have known them to be if he had exercised reasonable diligence to ascertain the facts.
"On the other hand of necessity, a good faith belief in facts which he should know to be otherwise had he exercised reasonable diligence to ascertain the true state of facts. [ Sic.]
"A false representation, a false representation is a representation which is untrue, knowingly made to deceive another, a representation of what is true, which nevertheless — or it should be a representation of what is true, which nevertheless creates an impression of that which is false.
"A false representation may arise from any conduct capable of being turned into a statement of fact by a person of ordinary prudence. Thus, a false representation may be made by conduct calculated and intended to produce a false impression as well as by words.
"Such conduct may include the manner in which material facts were presented. If you find the offering circular involved conduct calculated to and amounting to a false representation intended to deceive purchasers of the debentures, such false representation could be the basis for a finding of guilty."
Accordingly, the trial court properly instructed the jury on the requisite culpable mental state for purposes of violating R.C. 1707.44(B)(4), (G), and (J).
If we were to accept Warner's contention that the jury instructions on R.C. 1707.29 were erroneous, we would still need to determine whether such instructions were harmless error. See Carella v. California (1989), 491 U.S. _____, 105 L. Ed. 2d 218, 222, 109 S. Ct. 2419, 2421 ("`In many cases, the predicate facts conclusively establish intent, so that no rational jury could find that the defendant committed the relevant criminal act but did not intend to cause injury . . . . In that event the erroneous instruction is simply superfluous: the jury has found, in Winship's words, "every fact necessary" to establish every element of the offense beyond a reasonable doubt'"), citing Rose v. Clark (1986), 478 U.S. 570, 580-581. After reviewing the instructions, we hold that even if the trial court shifted the burden from the prosecution on an essential element of the case, the error was harmless beyond a reasonable doubt because the predicate facts conclusively established knowledge on the part of Warner, so that no rational juror could find that Warner made the misrepresentations without the knowledge required by R.C. 1707.44. As noted in our recitation of the facts, Warner was involved in almost every facet of the internal operations of the bank. He was kept informed of all policy decisions by the board of directors. Warner's actions were shown to be calculated and deceitful. Therefore, any claim that Warner committed the act without the requisite knowledge is unsupported.
Therefore, for the foregoing reasons, we overrule Warner's thirteenth proposition of law.
VI App. R. 9(E) Correction of the Record
In the state's fourth and sixth propositions of law and Warner's ninth, tenth, eleventh and fourteenth propositions of law, the issues concern the procedure for giving certain instructions to the jury, whether a supplemental record of the instructions was properly made, the trial court's refusal to show the written jury instructions to defense counsel prior to their submission to the jury, and the constable's ex parte communications with the jury. We note with respect to the ex parte communications that Warner's attorneys were present when the trial judge left his chambers to order the additional instructions given to the jury. Warner does not assert, nor does the record indicate, that he objected to the trial court about this procedure or that a request was made that the jury be recalled for a formal presentation of the additional written instructions in open court. For the reasons stated in State v. Schiebel, supra, at Part II of case No. 90-85, we sustain all of the state's propositions of law and overrule Warner's propositions of law on this issue.
We find no prejudice from Warner's inability to review the trial court's written instruction on motive to the effect that a good motive or "purpose" was no defense to the crime of unauthorized acts or willful misapplication of funds. We agree with the court of appeals' conclusion that only with respect to the offense of willful misapplication was the jury instructed both that purpose is an element of the offense and that a good purpose was not a defense. Thus, the jury was adequately instructed as to the elements and defenses of both crimes. However, we note that there is no need for an instruction on good motive not being a defense to unauthorized acts, since the statute only requires a culpable mental state of recklessness.
Therefore, given Warner's acquittal on all the counts alleging willful misapplication of funds, we find no prejudicial error and overrule Warner's ninth and tenth propositions of law as they relate to this issue.
VII Jury Instructions
In Warner's tenth proposition of law, he argues that there were variations between the oral instructions and the written instructions.
In Part IV of this opinion, we found that there was no requirement to give an instruction on the duty to disclose based on the charges for violating R.C. 1707.44(B), (G), or (J). Therefore, if such a written instruction did not make its way to the jury, no error occurred. If the instruction did go to the jury, it would have benefited the defense and been harmful to the prosecution.
Furthermore, we have reviewed Warner's other claims regarding alleged variations and find them to be meritless.
Accordingly, for the above-stated reasons and those expressed on this issue in State v. Schiebel, supra, at Part IV of the cross-appeal in case No. 90-85, Warner's tenth proposition of law is not well-taken.
VIII Fedwire Transfers
In the state's third proposition of law and Warner's proposition of law eight, the issue is whether an unauthorized transfer of a savings and loan association's assets through the Fedwire system constitutes the assignment, transfer or delivery of a draft or other written instrument pursuant to R.C. 1153.01.
The Federal Reserve System ("Fed") provides a mechanism, called Fedwire, for transferring funds without using paper checks. Through the use of telephonic communications, computer processing, and other technological advances, the system can quickly transfer funds in large amounts across the country. All such transfers are completed on the same day, usually in a matter of minutes, and are guaranteed final when the receiving institution is notified of the credit to its account. Fedwire may be used by depository institutions to transfer funds from their own account that result from purchases or sales of federal funds, to meet balances at correspondent banks, and to send funds to another institution on behalf of customers. Transfers on behalf of customers include funds associated with the purchase or sale of securities, the replenishment of business demand deposits, and other time-sensitive payments. The Treasury Department and other federal agencies use Fedwire extensively to disburse and collect funds. The average transaction exceeds one million dollars, and the service handles billions of dollars in transactions each day. Its use has increased as a result of business customers seeking close control and management of their funds. Users can make transfers either by telephone or through on-line computer linkups. For example, in 1986 the number of funds transfers increased by 10.6 percent over the prior year for a total of 49,900,000 transactions. 73 Bd. of Governors, Fed. Reserve Sys. Annual Rep. 210 (1987); Schroeder, Bank Officer's Handbook of Commercial Banking Law (6 Ed. 1989) 3-36 to 3-37, Section 3.04[b].
Unlike the telex, for example, which only transmits the instruction to pay, a Fedwire transmits both the message and the underlying funds. Thus, the Fed participates directly in the settlement of interbank obligations and provides settlement services as well as communication services.
Currently, the rules governing the Fedwire are contained in Subpart B of Regulation J contained in Sections 210.25 to 210.38, Title 12, C.F.R., issued by the Board of Governors of the Federal Reserve System as supplemented by operating circulars issued by each Federal Reserve Bank.
Settlement in Fedwire is bilateral. The Fed debits and credits Fed accounts on each separate message moving through the system. While the Fed permits some senders of Fedwires to overdraw their accounts during the day, the finality of a Fedwire payment is not conditional on the sender's covering the "daylight" overdraft. Regulation J provides that a transfer is "finally paid" when "the transferee's Reserve Bank sends the transfer item or telephones the advice of credit for the item to the transferee, whichever occurs first. Section 210.36(a), Title 12, C.F.R. Since the credit to the recipient depository institution's account is not conditional and occurs almost simultaneously with the receipt of the transfer instruction by the Fed, and because it is practically impossible for a Reserve Bank to fail, Fedwire credits are "good funds." Indeed, they are the best funds a transferee can have. Scott, Corporate Wire Transfers and the Uniform New Payments Code (1983), 83 Colum. L. Rev. 1664, 1669-1670.
Although the number of wire transfers each year is quite small in relation to checks (one to two hundred thirty-five), when something goes wrong on a wire transfer, a great deal more money (a ratio of $3,500 to $1) is typically at stake. Almost all transfers are settled through a reserve account at the Federal Reserve Bank. See Vergari Shue, Checks, Payments, and Electronic Banking (1986) 524, fn. 33.
The state contends that between the months of May and October 1983, Warner caused a total of $114,000,000 of Home State's assets to be transferred on forty-one separate occasions, all of which violated Home State's board of directors' resolution dated April 28, 1983. All these funds were paid over the Fedwire system. R.C. 1153.01 provides:
"No president, director, trustee, committee member, secretary, treasurer, attorney, or other officer or agent of a building and loan association shall embezzle, abstract, or willfully misapply any of the moneys, funds, or credits of the association; nor shall he issue or put into circulation a warrant or other order, or assign, transfer, cancel, or deliver a note, bond, draft, mortgage, judgment, decree or other written instrument belonging to the association, or raise or receive money for and in the name of such association, unless authorized to do so by its board of directors."
The indictment, however, charged only that Warner did "assign, transfer or deliver a note, bond, draft or other written instrument"; it did not charge with the statutory language that he did "issue or put into circulation a warrant or other order."
Thus, the issue before this court is whether these Fedwire transfers violated that part of R.C. 1153.01 charged in the indictment. Warner asserts that a wire transfer is not a "written instrument" within the meaning of R.C. 1153.01, as it is neither "written" nor an "instrument" as those words are commonly used.
Since this issue is one of first impression for this court, we will consider how other jurisdictions have applied laws drafted primarily to address traditional written documents, such as checks, but applied to modern wire transfers. In Richards v. Platte Valley Bank (C.A.10, 1989), 866 F.2d 1576, the United States Court of Appeals decided that the word "check" as used in the Uniform Fiduciaries Act could be interpreted to include wire transfers of funds. The Richards court stated:
"We believe wire transfers are analogous to checks for application of the Uniform Fiduciaries Act. The transfer of funds by cable or telegraph is in law a check. Lourie v. Chase Nat'l Bank, 42 N.Y.S. 2d 205, 206 (Sup.Ct. 1943). See also Delbrueck Co. v. Manufacturers Hanover Trust Co., 609 F.2d 1047, 1051 (2d Cir. 1979) (wire transfers have been treated as analogous to checks in determining whether a transfer is irrevocable). * * *
"* * *
"* * * The transfer item must be in some form of writing, such as letter, telegram or magnetic disc. 12 C.F.R. § 210.28. Wire transfers are considered irrevocable after transmission. Delbrueck, 609 F.2d at 1051.
"The wire transfer requirements [see Sections 210.25 to 210.38, Title 12, C.F.R.] are similar to the definition of a check under the Uniform Commercial Code. A check is defined as a draft drawn upon a bank and payable on demand, signed by the maker or drawer, containing an unconditional promise to pay a sum certain in money to the order of the payee. * * * A wire transfer is a written order to pay, drawn upon a bank containing an unconditional promise to pay a sum certain in money to the order of the beneficiary. The only element missing is the maker's signature. We do not consider this element significant for purposes of excluding wire transfers from the operation of the Uniform Fiduciaries Act." Id. at 1580-1581.
Although the Uniform Commercial Code is not directly applicable to this case due to the nature of the transfer, analogous use of its concepts supports the proposition that wire transfers are written instruments for purposes of R.C. 1153.01. Delbrueck Co. v. Mfrs. Hanover Trust Co. (C.A.2, 1979), 609 F.2d 1047, 1051 ("[t]he Uniform Commercial Code [`UCC'] is not applicable to this case because the UCC does not specifically address the problems of electronic funds transfer. However, analogous use of concepts such as the finality of checks once `accepted' (§§ 3-410, 4-303) would support the irrevocability of these transfers"); Securities Fund Services v. Am. Natl. Bank Trust Co. (N.D. Ill. 1982), 542 F. Supp. 323, 326-328; cf. Evra Corp. v. Swiss Bank Corp. (C.A.7, 1982), 673 F.2d 951, 955 ("[m]aybe the language of Article 4 [of the Uniform Commercial Code] could be stretched to include electronic fund transfers, see section 4-102(2), but they were not in the contemplation of the draftsmen.").
In Illinois, ex rel. Lignoul, v. Continental Ill. Natl. Bank Trust Co. of Chicago (C.A.7, 1976), 536 F.2d 176, certiorari denied (1976), 429 U.S. 871, the United States Court of Appeals, Seventh Circuit, decided that making an electronic transfer of funds through a computer terminal was essentially the same as issuing a check. The Lignoul court observed:
"The check is merely the means used by the bank to attain the desired objective, i.e., the payment of the money to its customer. The card serves the same purpose as the check. It is an order on the bank. Any order to pay which is properly executed by a customer, whether it be check, card or electronic device, must be recognized as a routine banking function when used as here. The relationship between the bank and its customer is the same. Indeed, the trial court here recognized this when it characterized a CBCT [Customer Banking Communication Terminal] withdrawal as the `functional equivalent' of a written check. * * *
"* * *
"* * * There are many ways in which an order may be given and one way of late is by computer record. Transport Indemnity Co. v. Sieb, 178 Neb. 253, 132 N.W.2d 871 (1965). And the Ninth Circuit accepts the same concept that computer impulses constitute sufficient writing to meet the order test. United States v. DeGeorgia, 9 Cir., 420 F.2d 889 (1969)." Id. at 178; see, generally, Clarke, An Item Is An Item Is An Item: Article 4 of the UCC and the Electronic Age (1969), 25 Bus. Law. 109, 112.
In reviewing federal regulations on this issue, we note that the reporting requirements for financial institutions recognize that a wire transfer falls within the general category of a written instrument. Specifically, in Section 103.11(p), Title 31, C.F.R., a "transaction in currency" is described as:
"A transaction involving the physical transfer of currency from one person to another. A transaction which is a transfer of funds by means of bank check, bank draft, wire transfer, or other written order, and which does not include the physical transfer of currency is not a transaction in currency within the meaning of this part."
In turning to the case sub judice, we begin with the general rule of statutory construction that criminal statutes should be strictly construed against the state in criminal prosecutions. R.C. 2901.04(A). However, we are mindful that "[t]he canon in favor of strict construction of criminal statutes is not an obstinate rule which overrides common sense and evident statutory purpose. The canon is satisfied if the statutory language is given fair meaning in accord with the manifest intent of the General Assembly. United States v. Moore (1975), 423 U.S. 122, 145; United States v. Brown (1948), 333 U.S. 18, 25-26." State v. Sway (1984), 15 Ohio St.3d 112, 116, 15 OBR 265, 268, 472 N.E.2d 1065, 1068. Thus, the rule of ejusdem generis should not be invoked to defeat the obvious purpose of a legislative enactment.
In today's modern banking environment, electronic transfers have become commonplace. On an average day, six hundred billion dollars in funds are transferred by wire or electronic means. Vergari Shue, Checks, Payments and Electronic Banking (1986) 529. This vastly exceeds the amount transferred by check. See Scott, Corporate Wire Transfers and the Uniform New Payments Code (1983), 83 Colum. L. Rev. 1664. As noted in the discussion above, under modern day conditions, transferring assets of a savings and loan association over the Fedwire is the equivalent of sending a check or issuing a draft.
As noted in the Official Comments to UCC 4A-102:
"* * * The funds transfer governed by Article 4A is in large part a product of recent and developing technological changes. Before this Article was drafted there was no comprehensive body of law — statutory or judicial — that defined the juridical nature of a funds transfer or the rights and obligations flowing from payment orders. Judicial authority with respect to funds transfers is sparse, undeveloped and not uniform. Judges have had to resolve disputes by referring to general principles of common law or equity, or they have sought guidance in statutes such as Article 4 which are applicable to other payment methods. But attempts to define rights and obligations in funds transfers by general principles or by analogy to rights and obligations in negotiable instrument law or the law of check collection have not been satisfactory."
We recommend that the General Assembly consider legislation such as UCC 4A-102 in light of today's modern banking environment and in order to avoid sometimes strained interpretations of Ohio UCC Article IV.
Through R.C. 1153.01, the General Assembly clearly intended to criminalize the unauthorized transfers of an association's assets regardless of form. Thus, the transfer of funds through the Fedwire system qualifies as a "draft" or other "written instrument" as those terms are used in R.C. 1153.01. Accordingly, the court of appeals' conclusion that the unauthorized transfer of Home State's assets over the Fedwire did not constitute a "writing" within the meaning of R.C. 1153.01 was erroneous.
Therefore, for the reasons cited in the above analysis, the state's third proposition of law is sustained, and Warner's seventh proposition of law is overruled.
IX Culpable Mental State Under R.C. 1153.01
In his fourth proposition of law, Warner asserts that the trial court failed to properly instruct the jury that in order to find Warner in violation of R.C. 1153.01, it would have to determine that he intended to injure or defraud Home State.
R.C. 1153.01 does not on its face provide the degree of culpability necessary in order to be found guilty of unauthorized acts, nor does it plainly indicate a purpose to impose strict liability. Although a "willful" or "purposeful" state of mind could arguably be an element of a charge of willful misapplication of funds under the first clause of R.C. 1153.01, there is no way to construe the second clause of the statute to impose such a requirement for conviction for unauthorized acts. Thus, we must determine what mental state is necessary for a conviction under the second clause.
As a general rule of construction, "[a] statute defining an offense, which is silent on the question of intent, thereby indicates the purpose of the General Assembly to make proof of a specific intent unnecessary, and, therefore, proof of a general intent to do the proscribed act is sufficient[.] * * *" State v. Lisbon Sales Book Co. (1964), 176 Ohio St. 482, 27 O.O. 2d 443, 200 N.E.2d 590, paragraph two of the syllabus; see, also, State v. Bentz (1981), 2 Ohio App.3d 352, 353, 2 OBR 408, 409, 442 N.E.2d 90, 92. Furthermore, R.C. 2901.21(B) sets forth the requirements for criminal liability by providing in part: "* * * When the section neither specifies culpability nor plainly indicates a purpose to impose strict liability, recklessness is sufficient culpability to commit the offense." (Emphasis added.) A person acts recklessly when, "with heedless indifference to the consequences, he perversely disregards a known risk that his conduct is likely to cause a certain result or is likely to be of a certain nature. A person is reckless with respect to circumstances when, with heedless indifference to the consequences, he perversely disregards a known risk that such circumstances are likely to exist." R.C. 2901.22(C). Thus, in the absence of the specification of a culpable mental state in R.C. 1153.01, we hold that the culpable mental state for unauthorized acts in violation of R.C. 1153.01 is recklessness.
In the case sub judice, the trial court declined to instruct the jury that the requisite mental state for the offense of unauthorized acts was "intent to injure or defraud," as charged in the indictment. Instead, the court charged the jury that "[f]or the assigning, transferring, cancelling or delivering of a note, draft, bond, mortgage, judgment, decree or other written instrument belonging to the association or raising or receiving money and in the name of the association without the authorization of the board of directors, the culpable mental state is recklessness." Accordingly, since we have determined that the culpable mental state for unauthorized acts is recklessness, the jury in this case was properly instructed in accordance with the law. Therefore, Warner's fourth proposition of law is overruled.
Even-numbered counts two through eighty-two, charging the defendants with unauthorized acts, allege that Warner and Schiebel, "as officers, agents or directors of * * * [Home State], with the intent to injure or defraud the Bank, did * * * assign, transfer or deliver a note, bond, draft or other written instrument belonging to the Bank * * * to ESM, without the authorization of the Bank's Board of Directors * * *."
In Warner's fifth proposition of law, he maintains that the trial court's instruction to the jury was inconsistent with the indictment.
In even-numbered counts two through eighty-two, the grand jury indicted Warner and others for unauthorized acts, stating that they committed the acts "with the intent to injure or defraud the Bank." However, as just decided in our discussion of Warner's fourth proposition of law, the culpable mental state for unauthorized acts in violation of R.C. 1153.01 is recklessness. State v. Bentz, supra; R.C. 2901.21(B); see, also, State v. Lisbon Sales Book Co., supra.
R.C. 1153.01 does not, on its face, state the culpable mental state for committing the offense. Instead, reference must be made to other statutes and case law. See State v. Lisbon Sales Book Co., supra; State v. Bentz, supra; R.C. 2901.21(B). Therefore, we will not impose hypertechnical requirements not already required for an indictment or complaint. It is not necessary to set forth the specific degree of culpability in an indictment where the statute fails to do so and it can readily be gleaned by reference to other statutes or case law. Consequently, we hold that the indictment, although misstating the correct degree of culpability for violating R.C. 1153.01, did meet minimal constitutional standards.
Therefore, Warner's fifth proposition of law is overruled.
X Ratification under R.C. 1153.01
In his sixth proposition of law, Warner claims that the trial court erred in failing to instruct the jury that subsequent ratification by the Home State board of directors of the acts charged in even-numbered counts two through eighty-two constituted a defense to the crime of unauthorized acts.
Warner submitted into evidence copies of board reports which had been distributed to and reviewed by the board of directors of Home State at their monthly meetings and which contained the figures necessary to calculate the collateralization rate of the association's repurchase agreements. Based on those reports, Warner and the other defendants requested that the trial court charge the jury that a board of directors may implicitly ratify, and thereby authorize, a previously unauthorized act if the board, with actual knowledge of the facts, either accepted or retained the benefits of the transaction, acquiesced in the transaction, or failed to repudiate the transaction within a reasonable time. The trial court denied Warner's proposed instruction and, instead, charged the jury that:
"In regard to the authorization of the board of directors, a corporation acts through its board of directors. Corporate actions are required by law to be authorized by the board of directors as a result of resolutions passed at meetings of the board, or they may be authorized or passed upon without a meeting, upon the affirmative vote or approval of, and in a writing or writings signed by all the directors.
"* * *
"You must determine what authority, if any, to manage investments, was delegated to the officers or agents of Home State, and whether that authority was exercised by those officers or agents as was authorized and delegated by the board of directors."
The trial court refused Warner's instruction on ratification based on its determination that the Revised Code limits corporate acts to those authorized by resolution passed at a formal meeting of the board of directors or by unanimous written consent of the board. See, generally, R.C. 1701.59, 1701.62 and 1701.54.
A well-settled doctrine of the law of agency is that a principal may ratify the acts of its agent performed beyond the agent's scope of authority, and such ratification relates back to the time of performance of the acts and binds the principal from that time. State, ex rel. Riley Constr. Co., v. East Liverpool Bd. of Edn. (1967), 10 Ohio St.2d 25, 29, 39 O.O. 2d 15, 18, 225 N.E.2d 246, 249. In Campbell v. Hospitality Motor Inns, Inc. (1986), 24 Ohio St.3d 54, 24 OBR 54, 493 N.E.2d 239, we concluded that a corporation could be bound to a contract that was neither expressly authorized nor expressly ratified by its board of directors, thus reaffirming the established rule that "an unauthorized contract entered into by a corporate officer or agent may be impliedly ratified by the corporate board of directors where the directors have actual knowledge of the facts and (1) accept and retain the benefits of the contract, (2) acquiesce in it, or (3) fail to repudiate the contract within a reasonable period of time." Id. at 57, 24 OBR at 138, 493 N.E.2d at 242.
However, as succinctly stated by the court of appeals, "[t]he issue before us * * * is not whether a corporation's board of directors may authorize corporate acts in ways other than those prescribed by statute, but whether subsequent action or inaction by the board of directors may relieve an officer, director or other agent charged with unauthorized acts of criminal liability." The overwhelming weight of federal and state authority has rejected the defense of subsequent ratification, whether express or implied, where criminal acts have been alleged ( i.e., a violation of the Criminal Code). See, e.g., United States v. Larson (C.A.7, 1978), 581 F.2d 664, 668, fn. 5 (even if bank directors' action was construed as approval of action of bank president in placing bank funds in a noninterest-bearing account in another bank from which president obtained a loan on preferential terms, it would not be defense to a charge against the president of willful misapplication of bank funds, since the misapplication preceded the approval); United States v. Acree (C.A.10, 1972), 466 F.2d 1114, 1118 (refusal by the trial court to admit minutes of meetings of bank's board of directors which generally referred to purchase of poor loans by defendant was not error, since subsequent ratification is no defense in a prosecution for willfully misapplying funds and credits of bank while an officer thereof); United States v. Cauble (C.A.5, 1983), 706 F.2d 1322, 1354 (ultimate restitution is not a defense to the crime of willful misapplication of bank funds, because crime is complete when misapplication occurs); Rieger v. United States (C.A.8, 1901), 107 F. 916 (willful misapplication of funds of a bank without knowledge or consent of the bank is not changed, as to its criminal character, by the fact that the act subsequently became known to the officers of the bank, and that they impliedly consented thereto, by taking no action in regard to it); Simpson v. United States (C.A.9, 1916), 229 F. 940, 945 ("[t]he criminal act was complete when the certificate of deposit was issued without authority from the directors, and with intent to injure and defraud the association, and no act of the directors could change its character. The doctrine of ratification has but little application to the criminal law."); Gilbert v. United States (C.A.9, 1966), 359 F.2d 285, 287 (the fact that taxpayers whose names the defendant endorsed on government tax-refund checks may have ratified his acts would not have rendered his conduct any less criminal); Phillips v. State (1956), 38 Ala. App. 632, 634, 91 So.2d 518, 519 ("* * * ratification, condonation, or settlement of a claim by a prosecuting witness subsequent to the commission of the offense will not disturb a criminal prosecution"); State v. Austin (1923), 93 W. Va. 704, 117 S.E. 607, paragraph nine of the syllabus ("[w]here accused is charged with forging and uttering a bank check and the undisputed evidence is that the check was not drawn by the accused, but by a third party, no subsequent ratification of the drawing of the check will defeat the right of the state to prosecute for the offense of uttering it knowing it to be a forged instrument * * *"); State v. Higgin (1959), 257 Minn. 46, 50, 99 N.W.2d 902, 906 (condonation or ratification is, ordinarily, no defense to a crime; if defendant had sufficient intent to defraud when he endorsed check in name of employer, employer's subsequent ratification of his act could not constitute a defense to a charge of forgery); Lewallen v. State (1958), 166 Tex.Crim. App. 287, 288, 313 S.W.2d 293, 294 (board of directors of corporation could not ratify defendant's criminal act of embezzlement by acquiescence); Breaker v. State (1921), 103 Ohio St. 670, 671, 134 N.E. 479, 480 ("* * * a statutory crime is not a private wrong, but a public wrong; * * * the public, or state, is entirely indifferent to the personal feelings of the owner of property stolen. It is the state that is prosecuting the violation of its statute; on its own behalf, and not on behalf of the owner of the property").
Thus, for the reasons stated above, we find that the trial court properly instructed the jury and, therefore, overrule Warner's sixth proposition of law.
XI Post-Trial Amendment
In the state's second proposition of law and Warner's seventh proposition of law, the issue is whether the trial court properly allowed the state to amend the indictment subsequent to Warner's conviction in order to reflect additional language contained in R.C. 1153.01.
Even-numbered counts two through eighty-two of the indictment, charging Warner with unauthorized acts, alleged only that he "did * * * assign, transfer or deliver a note, bond, draft or other written instrument belonging to the Bank * * * to ESM, without the authorization of the Bank's Board of Directors; a felony of the fourth degree * * *." Following the jury's verdict convicting Warner of unauthorized acts charged in even-numbered counts seventy-two through eighty-two, Warner moved pursuant to Crim. R. 29 for acquittal on the charges, urging that the wire transfers did not constitute a violation of R.C. 1153.01 as alleged in the indictment. Prior to sentencing, the state moved to amend the indictment as to the unauthorized acts counts in order to add the language to the effect that Warner "* * * did issue or put into circulation a warrant or other order" without board authorization. The trial court granted the state's motion to amend the indictment and denied Warner's motion for acquittal.
Thus, the difference between the two versions of the indictment is the substantive addition to the post-trial amended indictment that Warner issued or put into circulation "a warrant or other order."
As the court of appeals noted, in four separate instances the written instructions indicated that the proscribed unauthorized acts with which Warner was charged included not only the language "assign[ment], transfer or deliver[y] [of] a note, bond, draft or other written instrument," but also included the language "issu[ance] or * * * circulation [of] a warrant or other order." In comparing the transcripts of the oral jury instructions with the written jury instructions, we find that in both sets of instructions the trial court, with respect to violations of R.C. 1153.01, initially gave a verbatim recitation of the statute in its entirety. Furthermore, in the written instructions the trial court cited the clause "issu[ance] or * * * circulation [of] a warrant or other order" along with the rest of the statute in its introduction to the unauthorized acts counts. However, the specific instructions for each count alleging violations of R.C. 1153.01 required the jury to consider only whether Warner assigned, transferred or delivered a note, bond, draft or other written instrument.
Thus, the written instructions recited the entire statute in various introductory remarks, while the instructions for the actual counts for which Warner was ultimately convicted set forth only the pertinent language of the statute necessary to support criminal liability. Therefore, there were no material differences between the oral and written instructions since both contained the essence of the charge and the specific conduct which was attributable to Warner. In light of the discussion above, we find that the trial court erroneously granted the post-trial amended indictment, since the state's case and jury instructions (oral and written) were consistent with the original amended indictment. Thus, we conclude that Warner was not prejudiced by the post-trial amendment because his conviction was supported by the original amended indictment.
Since we have concluded that there were no material deviations between the oral and written jury instructions, any error with respect to Warner's inability to review the written instructions was harmless.
Accordingly, the state's second proposition of law is sustained, while Warner's seventh proposition of law is overruled.
In the state's seventh proposition of law and Warner's fifteenth and sixteenth propositions of law, the issue is whether the trial court properly ordered Warner to remit $22,000,000 in restitution for damages arising from his unauthorized acts and securities violations.
The state suggests that the $22,000,000 could be based on two components: (1) $12,200,000 for the six unauthorized acts of which Warner was convicted, and (2) $10,700,000 for Warner's three securities violations.
As a threshold to this issue we must respond to Warner's assertion that restitution was improper since financial losses are not "property damages" within the meaning of R.C. 2929.11. Warner was convicted of six unauthorized acts under R.C. 1153.01 and three securities violations under R.C. 1707.44, all fourth degree felonies. R.C. 1153.99 and 1707.99. For a fourth degree felony, R.C. 2929.11 provides in pertinent part:
"(E) * * * the court * * * may require a person who is convicted of or pleads guilty to a felony to make restitution for all or part of the property damage that is caused by his offense and for all or part of the value of the property that is the subject of any theft offense, as defined in division (K) of section 2913.01 of the Revised Code, that the person committed."
"Property," as the term is used in the Revised Code, is defined as "any property, real or personal, tangible or intangible, and any interest or license in such property." R.C. 2901.01(J). And R.C. 2913.01(K) defines a "theft offense" as "* * * (3) [a]n offense under an existing or former municipal ordinance or law of this or any other state or the United States involving robbery, burglary, breaking and entering, theft, embezzlement, wrongful conversion, forgery, counterfeiting, deceit, or fraud; (4) [a] conspiracy or attempt to commit, or complicity in committing any offense under division (K) * * * (3) of this section."
Clearly, the term "property," as used in R.C. 2929.11(E), is sufficiently broad to include financial damages. There is no evidence that the General Assembly intended to restrict the meaning of the term property damages to physical damage to property. Therefore, we will not graft a narrow interpretation of the term "property" and, consequently, a court may order a defendant to pay restitution for financial damages pursuant to R.C. 2929.11.
Furthermore, the term "theft" includes the commission of unauthorized acts in violation of R.C. 1153.01, since these acts are in essence the wrongful conversion of property. Similarly, "theft," as defined in R.C. 2913.01(K)(3), encompasses securities fraud or acts which are tantamount to fraud, e.g., violations of R.C. 1707.44(B)(4), (G) or (J). Thus, an order to pay restitution for committing unauthorized acts and securities fraud or violations tantamount to fraud is permissible under the Revised Code.
Having established that an order of restitution could be imposed upon Warner for any property damage or loss caused by his criminal acts, our next task is to determine whether the trial court's order was supported by sufficient evidence.
Prior to sentencing, the state and Warner submitted memoranda on the issue of restitution. Also, the trial court conducted a hearing and took evidence. In reviewing the record, which includes the testimony of Gerald Stephens, a former Home State senior vice president, we find that $12,200,000 of the approximate $140,000,000 loss suffered by Home State was due to the six unauthorized acts Warner was convicted upon. Specifically, the evidence at trial supported the allegations that Warner transferred $2,500,000 on August 29, 1983, $1,700,000 on August 31, 1983, $2,700,000 on September 15, 1983, $1,800,000 on September 16, 1983, $3,000,000 on October 12, 1983, and $500,000 on October 14, 1983 to ESM without the authorization of Home State's board of directors. There is no evidence in the record to suggest that Home State ever recovered the $12,200,000 that was transferred. Thus, $12,200,000 of the trial court's restitution order was supported by competent, credible evidence and was not against the manifest weight of the evidence.
However, in addition to the $12,200,000 in actual losses, the state alleged that Home State debenture holders lost $10,775,463 from the sales or exchanges during the 1984 debenture offering. The record discloses that Home State sold or exchanged debentures from September through November 1984, which were scheduled to become due October 31, 1989, in the following amounts:
"a. 1989 debentures exchanged for 10/31/84 debentures — $5,875,500
"b. 1989 debentures exchanged for accrued interest on 10/31/84 debentures — $1,471,059
"c. sale of 1989 debentures for cash — $3,428,904
"Total 1989 debentures sold or exchanged — $10,775,463."
The overall losses suffered by depositors of Home State were calculated to be $129,000,000, which was ultimately paid by the Depositor Assistance Corporation, which obtained its funds by borrowing them from the state of Ohio.
The record reflects that at the time of Home State's collapse, it had debenture liabilities in excess of $26,000,000. Although over $10,700,000 was advanced by Home State in exchanges of the old debentures for new debentures in October 1984, there was seemingly no effect upon its existing liabilities. Basically, according to Gerald Stephens, the old debentures relieved Home State of approximately $30,000,000 worth of liabilities, in exchange for which Home State took on approximately another $10,700,000 in liabilities, which left a net effect of a reduction of $18,000,000 of liability. Also, he stated, when Home State collapsed in 1985, $11,000,000 in obligations was still outstanding from the 1984 public offering. Those obligations were subsequently satisfied by the state of Ohio. These statements seemingly are contradictory and unsupportable.
Although the state can account for approximately $10,700,000 in funds which were exchanged as a result of the fall 1984 offering, the record is not clear as to any direct losses sustained as a result of the exchanges. Instead, the record suggests that a net reduction in liability took place. The $11,000,000 in outstanding liabilities attributed to the offering at issue is not broken down or traced to the offering circular anywhere in the record. This court is left to guess what losses flowed directly from the offering. We find there was insufficient evidence upon which the trial court could determine actual losses occasioned by the offering. Therefore, since in our view the record supports only $12,200,000 in actual losses, we must modify the trial court's order of restitution from $22,000,000 to $12,200,000, and we remand this case to the trial court for further proceedings in order that the parties may be permitted to present evidence upon which losses, if any, from counts eighty-three, eighty-five and eighty-six may be determined.
The order of restitution does not foreclose the state from seeking additional remedies against Warner for losses suffered by Home State and its depositors.
Accordingly, the state's seventh proposition of law and Warner's fifteenth proposition of law are sustained in part, while Warner's sixteenth proposition of law is overruled.
For the reasons stated in this opinion and those referred to in State v. Schiebel, supra, the judgment of the court of appeals is reversed in case Nos. 89-584 and 90-84, and we reinstate defendant's conviction on even-numbered counts seventy-two through eighty-two for the commission of unauthorized acts and counts eighty-three, eighty-five and eighty-six for violations of the securities laws of Ohio. The order of restitution by the trial court is modified to $12,200,000, and we remand for further proceedings not inconsistent with this opinion.
Judgment reversed and cause remanded.
MOYER, C.J., J. V. CORRIGAN, NAHRA, WRIGHT, H. BROWN and MCCORMAC, JJ., concur.
JOHN V. CORRIGAN, J., of the Eighth Appellate District, sitting for SWEENEY, J.
JOSEPH J. NAHRA, J., of the Eighth Appellate District, sitting for DOUGLAS, J.
JOHN W. MCCORMAC, J., of the Tenth Appellate District, sitting for RESNICK, J.