Lay Opinion Testimony Based on Hearsay Statements Made by Unidentified Individuals, Well Beyond Witness’s Personal Experience, Violates Rule 701 — Email Containing Hearsay That Is Relevant to State of Mind Only If Hearsay Is True Is Inadmissible
United States v. Lloyd, 2015 U.S. App. LEXIS 21056 (9th Cir. Dec. 4, 2015):
Five defendants appeal their convictions or sentences for selling unregistered securities. The defendants worked for telemarketing "boiler rooms" in California and Florida, soliciting investments in partnerships to finance the production and distribution of movies. The defendants promised potential investors that the investments would return swift and large profits, with little to no risk. Approximately 650 individuals--including unsophisticated people who could not afford the financial loss--invested over $23 million. Most of the investors [*4] lost it all.
These appeals arise from two indictments issued in the Central District of California on June 15, 2011. The indictment in United States v. Daniel Toll et al., No. 11-cr-543-JFW, charged James Lloyd, who managed a boiler room in Los Angeles, California; telemarketers Paul Baker, David Nelson, and Albert Greenhouse; and eight others, all of whom worked through a California boiler room to sell partnership units in three movies produced (or supposed to be produced) by Cinamour Entertainment, LLC. The indictment in United States v. James Lloyd, No. 11-cr-542-JFW, charged Lloyd, who left Cinamour to manage a different boiler room in California, and Robert Keskemety, who managed a Florida boiler room, along with seven others, for selling partnership units in two movies. These movies were produced by Q Media Assets LLC, a company owned by the same person who owned Cinamour. Both indictments charged conspiracy, mail fraud, wire fraud, and securities fraud between 2001 and 2009.
The two boiler room managers, James Lloyd and Robert Keskemety, were convicted after they pleaded guilty. They appeal only their sentences. Two Cinamour telemarketers working in California, David Nelson and [*5] Paul Baker, and Albert Greenhouse, a Cinamour telemarketer working in Florida, were tried together. Nelson and Baker appeal their convictions and sentences. The only issue in the Greenhouse appeal is the sentence. We have jurisdiction under 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a).
The number of defendants, the lengthy period involved, and the type of conduct made this a difficult case for any trial court to resolve. The record shows that the district judge competently and fairly resolved many of the innumerable issues that arose in trial and at sentencing. The points on which we disagree with the district judge raise issues that are both complex and close.
James Lloyd pleaded guilty to two counts of wire fraud and Robert Keskemety to one count of mail fraud. They appeal their sentences. We affirm Lloyd's sentence, but we conclude that Keskemety's sentence for managing the Florida telemarketing boiler room improperly included fraud losses from the California boiler room that Lloyd managed. We vacate Keskemety's sentence and remand for resentencing.
David Nelson and Paul Baker appeal both the convictions and sentences entered after the jury convicted each of one count of conspiracy to commit mail and wire fraud and to offer [*6] and sell unregistered securities, two counts each of mail and wire fraud, and two counts of offering and selling unregistered securities. We reverse Nelson's conviction based on evidentiary rulings, vacate the sentence, and remand. We affirm Baker's conviction due to the overwhelming evidence against him, making the evidentiary errors harmless, but we vacate Baker's sentence and remand for resentencing because of an error in calculating the Guidelines sentence.
Finally, Albert Greenhouse appeals the sentence he received after the jury convicted him of two counts of offering and selling unregistered securities. We find no error, and we affirm.
Glen Hartford, a film producer, founded Cinamour in 2000 to make and distribute independent films, and served as its chief executive officer and majority shareholder. Hartford used telemarketing to solicit money from individual investors to finance three movies: Forbidden Warrior, From Mexico with Love, and Red Water 12. These three movies are the basis of the United States v. Toll indictment.
Cinamour began raising money for Forbidden Warrior in 2001 out of a telemarketing boiler room in Los Angeles, California. Lloyd and Baker were involved [*7] in the Forbidden Warrior fundraising. That movie was released in 2005 directly to video distribution and made about $500,000, a commercial failure of large proportions.
From 2004 to 2007, Cinamour used telemarketing to solicit purchases of partnership units to finance From Mexico With Love. Cinamour raised approximately $14.2 million from 445 investors nationwide. From Mexico With Love grossed about $800,000 from a very limited theatrical release. The investors received no return on the money they sent. Lloyd, Baker, and Greenhouse were involved in soliciting investments in From Mexico With Love.
In 2007, Cinamour began telemarketing sales of partnership units in Red Water. Cinamour raised approximately $2.8 million from approximately 100 victims nationwide but spent only $23,000 on making the movie. The investors lost everything. Baker and Nelson were involved in soliciting the investments in Red Water.
In 2009, after an undercover investigation, the FBI raided Cinamour's Los Angeles offices. Hartford committed suicide days after the raid.
The indictment in United States v. Lloyd arose from telemarketed investments in two movies written, directed, and produced by a former Central Intelligence [*8] Agency officer, Michael D. Sellers. Sellers retained Joel Lee Craft, Jr., founder and chief executive officer of American Information Strategies, Inc., to help raise capital for the films, Eye of the Dolphin and Way of the Dolphin. Sellers worked with Craft to set up telemarketing boiler rooms, hiring Keskemety in Florida, and later, Lloyd in California, to manage them.
In 2002, Sellers recruited Keskemety to establish and manage the Florida telemarketing office. The goal was to raise money for the two Dolphin movies. In 2004, Keskemety began soliciting investments for Eye of the Dolphin. Sellers asked Craft to introduce him to other potential boiler-room managers. Through Craft, Sellers met Lloyd and hired him in 2007 to move from managing the Cinamour telemarketing office in Los Angeles to managing an office in the same city to solicit investments in partnership units to finance Sellers's films. Keskemety and Lloyd hired and paid the other telemarketers to raise money for the Dolphin films.
When Lloyd began managing the Los Angeles boiler room for Sellers, he had been working for Cinamour for over four years soliciting money for Forbidden Warrior and From Mexico With Love. He brought [*9] the same marketing techniques to selling partnership units in Eye of the Dolphin and Way of the Dolphin. The California and Florida boiler rooms together raised $9.6 million from 264 investors for the two Dolphin movies. Both movies failed. The investors in the first movie, as a group, received only $370,656 of their initial investment. The investors in the second movie lost everything.
The boiler rooms were similar. Less experienced telemarketers served as "fronters," cold-calling potential investors from lists of leads and reading from scripts to pitch the investments. The scripts included assurances to prospective investors of quick and large profits with little to no risk. These promises, and the details supporting them, were false. If the cold-calls led to expressions of interest, "closers"--more experienced telemarketers--would follow up and try to get signed investment documents and a check to close the deal. "Reloaders" would induce some of those who had already invested to put in more.
Many of the defendants had multiple roles, but each of the appellants worked as closers some of the time. Lloyd helped close investments in Forbidden Warrior and From Mexico with Love. Baker helped [*10] close investments in Forbidden Warrior, From Mexico with Love, and Red Water. Nelson helped close investments in Red Water. Greenhouse helped close investments in From Mexico with Love. Lloyd and Keskemety were closers for Eye of the Dolphin and Way of the Dolphin.
Lloyd, Baker, Nelson, and Greenhouse also worked as "reloaders" on the Cinamour films, targeting those who had already invested to persuade them to invest more. Reloaders participated in conference calls with these investors. The calls included telemarketers who pretended to be investors and enthusiastically agreed to commit more money. Lloyd also worked as a reloader on the two Dolphin films, but Keskemety did not.
Most of the defendants asserted that they believed the leads they cold-called and persuaded to invest were suitable and accredited individuals who were sophisticated and financially able to risk losing the money. The trial testimony from and about the investors, as well as the information in the presentence reports, tell a different story. Many of the investors had no significant experience in investing and few had significant liquid assets. Many had or were about to retire. At the trial, some of the investors [*11] testified that they had told the fronters, the closers, and the reloaders about their limited investment experience, their limited resources, and their life situations. The investors repeatedly testified about the defendants' assurances that the investments were risk free and would be returned with a profit within a short period. The investors briefly testified about the effects on them of losing the money.
The scripts the telemarketers used varied depending on the movie they were pitching, but there were many common elements. In initial solicitation cold-calls, the fronters stated that: (1) there was little to no risk in the investment because there were presale distribution contracts for the movies, which guaranteed that the investors would recoup their investments and make a profit; (2) investors would quickly begin to receive returns because the movies were completed or nearing completion and, with the presales contracts, would be distributed in the near future; (3) films previously produced by the same company had yielded good returns for investors; (4) the money invested would be used to make, promote, and distribute the movies, not to pay for fundraising, overhead expenses, or [*12] sales commissions; (5) the marketers earned little to no commissions; (6) investors would get their money back and more out of the movie proceeds before the promoters and sellers were paid; and (7) there was a time limit because the units would shortly become unavailable, requiring a quick commitment. These statements were affirmatively and materially false or omitted material information needed to make them true.
The evidence presented at trial and recounted in the presentence reports showed that there were few or no guaranteed presale distribution contracts and no prospects of obtaining them. While some of the movies were finished and failed in distribution, some were not in production and were never made. Prior investors in films produced by the same company had lost money. Most of the money from investors did not go to make or distribute the films, but to pay personnel and promoters. Most of the telemarketers earned 35 percent in commissions, although some earned as little as 12 percent and others as much as 40 percent. There was no time limit on the investments. Lies abounded.
If a fronter's cold-call produced an expression of interest, the potential investor would receive a private [*13] placement memorandum. The memorandum contained some cautionary language but repeated many of the same lies. Closers would follow up, making similar promises to get signed investment contracts and checks. Some of the investors were later targeted for reloading through the staged conference calls. In general, the defendants did not contend that the statements they made were true, but rather that they believed what they were told to say.
The first set of issues analyzed below arises from the sentencing appeals of the two defendants who pleaded guilty, Robert Keskemety and James Lloyd. The second set of issues arises from the appeals of the three defendants tried together and convicted.
II. The Appeals from the Convictions: Baker and Nelson
A. The Indictments
Baker, Nelson, and Greenhouse were indicted in United States v. Daniel Toll, et al., No. 11-cr-543, for soliciting investments in the Cinamour movies. Baker was charged with one count of conspiracy under 18 U.S.C. § 371, two counts of mail fraud under 18 U.S.C. § 1341, two counts of wire [*32] fraud under18 U.S.C. § 1343, and two counts of offering and selling (or aiding and abetting the offer and sale of) an unregistered security under 15 U.S.C. §§ 77e and 77x and 18 U.S.C. § 2. Nelson was charged with one count of conspiracy under 18 U.S.C. § 371, two counts of mail fraud under 18 U.S.C. § 1341, two counts of wire fraud under 18 U.S.C. § 1343, and two counts of offering and selling (or aiding and abetting the offer and sale of) an unregistered security under 15 U.S.C. §§ 77e and 77x and 18 U.S.C. § 2. Greenhouse was charged with one count of conspiracy under 18 U.S.C. § 371, three counts of mail fraud under 18 U.S.C. § 1341, and two counts of offering and selling (or aiding and abetting the offer and sale of) an unregistered under 15 U.S.C. §§ 77e and 77x and 18 U.S.C. § 2. The three defendants were tried together.
Baker worked from his home in California as a closer from 2004 to 2009, soliciting investments in From Mexico with Love and in Red Water. Nelson worked in Cinamour's Sherman Oaks and Encino, California, offices as a fronter and closer from October 2007 to May 2009, soliciting investments in Red Water. Greenhouse worked from his home in Florida from 2005 to 2007, soliciting investments in partnership units for From Mexico with Love.
The jury convicted Baker and Nelson on all the counts submitted against them. The jury acquitted Greenhouse of conspiracy [*33] and mail fraud but convicted him for offering and selling unregistered securities and aiding and abetting and causing those sales, in violation of 15 U.S.C. §§ 77e and 77x and 18 U.S.C. § 2.
At sentencing, the district court calculated a 292 to 365 month Guidelines range for Baker but varied downward, imposing a 194-month prison term and a $12,043,678.25 restitution obligation. The district court calculated a 97 to 121 month Guidelines range for Nelson but sentenced him to serve 84 months in prison and to pay $1,860,000 in restitution. Baker and Nelson timely appealed their convictions and sentences. Greenhouse was sentenced to 60 months in prison, below the Guidelines range of 63 to 78 months, and to pay $530,000 in restitution. He appeals only his sentence.
B. Baker's and Nelson's Challenges to Their Convictions
1. The Trial Evidence Against Baker
In 2001, Hartford hired Baker as an "associate producer" at Cinamour. Baker was working as a telemarketer soliciting money for Forbidden Warrior when he was arrested and jailed in March 2003 for a parole violation. Baker went back to working for Cinamour in January 2004 and, with his partner, worked for Cinamour out of their home in Coachella Valley, California until 2009. [*34]
In March 2004, Baker and his partner, doing business as Independent Essentials, entered into a written agreement with Cinamour for a 20 percent commission on the money they raised working as telemarketers and closers soliciting investments in From Mexico With Love. From January 2005 to January 2007, Baker closed $200,000 in From Mexico With Love investments. Baker also earned a commission for the investments that Lloyd closed using Baker's investor list from Forbidden Warrior. Lloyd used Baker's investor information to reload those who had sent money for Forbidden Warrior, producing more money for From Mexico With Love.
In 2007, Cinamour stopped soliciting for From Mexico With Love and turned to soliciting money from investors for Red Water. Baker and his partner ran the Red Water fundraising. Baker hired codefendant Bart Slanaker, who had experience operating telemarketing boiler rooms. Baker's partner managed the money, received investor checks, and paid commissions. Baker gave Slanaker Red Water sales materials and paid him a 15 percent commission.
Baker contacted prospective investors from lead lists. Diane Houseknecht testified that in a letter and conversations, Baker told her that [*35] investors would receive 90 cents on every dollar the film earned until they got back all the principal they had paid plus 10 percent. Baker also promised her that the return would be fast. He did not reveal that he would earn a 15 to 20 percent commission. Instead, he emphasized that the investors would get paid before the promoters or salespeople received anything and that the invested funds would be used to make and market the movies, not to pay promoters or salespeople. Houseknecht, who had no investment experience, invested $25,000 in Forbidden Warrior, $10,000 in cash and $15,000 from her retirement account. She got back $1,000. Lloyd later convinced Houseknecht to invest another $20,000 in From Mexico with Love, using $10,000 in cash and $10,000 from her retirement account.
Gary Tranter testified that Baker called him in 2002 to solicit an investment in Forbidden Warrior. In the telephone call, Baker compared Forbidden Warrior to the well-known and commercially successful film Crouching Tiger, Hidden Dragon. Baker stated that a majority of the Forbidden Warrior units had already been sold and that Tranter needed to act quickly. Baker told Tranter that Forbidden Warrior was ready [*36] for release in theaters in the near future; it was not. Baker also said that investors would be paid back first and that promoters and sales personnel would be paid only after the investors. Baker did not disclose the fact or amount of commissions he and others were getting. Tranter worked as a wholesale broker of indoor houseplants and had little financial or investment experience. He invested $10,000 in Forbidden Warrior and got back $800. Baker unsuccessfully tried to reload Tranter in From Mexico With Love but did get him to send another $5,000 for Red Water. Tranter never got any of his investment in Red Water back.
Another investor, Thomas Beacham, an office manager for a paint shop, testified that Baker cold-called him in 2002 about investing in Forbidden Warrior. Baker told Beacham that Forbidden Warrior would be a "big moneymaker" because it was comparable to Crouching Tiger, Hidden Dragon. When Beacham said that he did not have the money to invest, Baker emphasized that this was a limited-time offer and asked if Beacham had retirement savings he could use. When Beacham pointed out that he did not meet the requirements for an accredited investor--including that his net worth [*37] was far below the $1 million minimum--Baker urged him not to "worry about that. It's just in there for formality. We can make an exception in your case."
Beacham invested $5,000 from his retirement account in Forbidden Warrior. Baker successfully convinced Beacham to invest another $10,000 from his retirement account in From Mexico With Love after Beacham participated in a reloading conference call run by Lloyd and Agler. Beacham lost all the money he invested except "a hundred bucks or so." Beacham testified that he had lost his job in 2008 and had to cash out his retirement account, which was "15 grand shorter than it probably should have been."
FBI Special Agent Sean Sterle, who worked undercover posing as a Florida businessman interested in investment opportunities, also testified. After a cooperating witness introduced Baker to Sterle, five or six telephone conversations followed in which Baker tried to convince Sterle to invest in Red Water. Sterle recorded his conversations with Baker and the jury heard them at trial. The recordings included Baker's statements that Red Water had secured $5.4 million in presale commitments to distribute the film in 31 countries; that the presales [*38] revenues would pay investors a 110 percent return; that Sterle would receive a 110 percent return in eight to ten months, get his full investment back within the year, and triple his money in two years; and that the sales personnel received no commissions.
The evidence showed that the promises Baker repeatedly made were either false or made without any reasonable basis to believe that they were true.
2. The Trial Evidence Against Nelson
David Nelson worked for Cinamour as a fundraising telemarketer from October 2007 to May 2009. Nelson had a sad personal history. He began drinking at age 11. He dropped out of high school. His drinking and drug use lost him job after job. He tried to rehabilitate himself by joining the Marines, which trained him as a software engineer, but even the Marines could not get him to stop drinking. He received a general discharge. Although the training helped him get jobs, he lost them every few months. Nelson became homeless in 2001. In 2005, after four years of living on the streets and jumping from one job to another, Nelson got treatment for his alcoholism at a halfway house that required its clients to have jobs. Nelson found work as a telemarketer selling [*39] industrial equipment, but lost this job. Nelson again became homeless, living behind a dumpster. On March 30, 2007, paramedics found Nelson behind the dumpster and took him to the hospital.
Nelson readmitted himself to the halfway house for a third time in 2007 and got another telemarketing job. Nelson's supervisor there, Bart Slanaker, later convinced him to follow him to Cinamour's boiler room to work soliciting money for a new movie, Red Water.
Several victims testified about talking to Nelson. Melvin Bitikofer was a retired stove salesman who had owned his own store. Nelson cold-called him in October 2007. Nelson described the Red Water investment as a once-in-a-lifetime opportunity and promised Bitikofer that he would begin to receive returns as early as the first quarter of 2008. Nelson told Bitikofer that investors would get a 110 percent return, that the movie was already being filmed, that presale distribution contracts worth $5.9 million were already in place, and that nothing could go wrong. Nelson touted Cinamour's previous movie, From Mexico With Love, as a proven commercial success that had rewarded its investors well. Nelson omitted his commissions from the discussions [*40] and downplayed the investment risks. Bitikofer invested $50,000.
Nelson and his colleagues successfully reloaded Bitikofer several times. In February 2009, Bitikofer participated in a reloading conference call led by Bart Slanaker. Bitikofer testified that the other persons participating in the call appeared to be potential investors and that they enthusiastically endorsed the Red Water investment opportunity. These other participants were, in fact, Cinamour telemarketers. During the call, Bitikofer stated that he did not have more money and that any investment would have to come from his wife's IRA. After the call, Nelson and Slanaker persuaded Bitikofer to get $100,000 from his wife's IRA.
Bitikofer and his wife invested a total of $250,000, which they repeatedly told Nelson was from their retirement and IRA funds. They lost all they invested. Bitikofer testified that this loss resulted in a "[t]errible" financial hardship for the couple. They could "hardly keep up with the bills coming in" and faced the prospect of "tak[ing] out bankruptcy."
Richard Clark was a farmer with no investment experience. He wanted a conservative investment that could provide some income to help him stop farming because of [*41] its physical demands. Nelson cold-called Clark in April 2009 and solicited him to invest in Red Water.4 Clark told Nelson what he did for a living and that he had no investment experience. Nelson told Clark that very few units were left and that the investment was the "best thing" he had seen in his career. Nelson told Clark that he would start to receive distributions by the summer of 2009. Nelson assured Clark that there were already enough presale contracts to cover production and marketing costs and ensure him a fast profit.
4 Clark at first testified that Nelson called him in April 2005 to raise money for Red Water, but other evidence and Clark's testimony that he was "a little rusty" about the precise date shows that it was actually April 2009.
Clark also participated in a conference call with Slanaker, Nelson, and people he understood to be other investors. Clark testified that Nelson actively participated in this call. Clark invested $15,000, which he lost; he described the loss as "a bad lick for me."
Dennis Eliassen was retired when Nelson cold-called him in June 2008. Nelson told him that Cinamour already had $6 million in presale contracts, twice the amount needed to cover all [*42] the film production and marketing costs. Nelson sent Eliassen an email assuring him that investment "security is in place through our pre-sales distribution." Nelson told Eliassen that everything was on track to begin filming Red Water in December 2008, and that the investors would be paid first and quickly. Nelson also told him that From Mexico With Love and Forbidden Warrior had been successful for the investors. Eliassen invested $50,000 from his IRA and lost it all, a "pretty" big hardship.
Connie Hurd testified that when Nelson cold-called her in early 2008, she told him that she and her husband owned a tool company and had very little investment experience. Nelson assured her that the Red Water investment presented minimal risk and that the investors would be paid back everything before the promoters and sales personnel received anything. Nelson assured her that Cinamour already had presale contracts projected to be worth $5.9 million, which guaranteed a secure and profitable investment. Nelson did not disclose the existence or amount of his or others' commissions. Hurd lost her $5,000 investment.
The jury heard from Stephanie Alarcon, a Cinamour telemarketer hired by Slanaker [*43] to work as a fronter cold-calling potential investors and passing the names of those expressing interest to closers, who would follow up to finalize the sale. She made the calls from a lead list and read a script. Nelson listened to make sure she did it properly and gave her tips. Nelson asked her to write down personal information potential investors gave her in the calls for him to use in his closing pitches. Alarcon followed this instruction. For example, when she talked to Richard Clark, she noted that he was a Christian and that Nelson should emphasize "Christian things" in trying to finalize his investment. Alarcon's account of what she was told to say when she called potential investors was consistent with their testimony about what they were promised.
Nadav Shimoni, another fronter, testified that he participated with Nelson in some of the reloading conference calls. Nelson would read a sales pitch from a script, and Shimoni would pretend that he was an investor who had decided to invest more money. His testimony was consistent with what the investors who participated in these calls described.
Nelson testified and told the jury about his background. He testified that in April [*44] 2007, just after he became sober, he got a job as a telemarketer working under Bart Slanaker. Nelson testified that Slanaker was so domineering and abusive that Nelson feared him and was intimidated into doing whatever Slanaker told him to do. His fear of losing yet another job contributed to his unquestioning obedience.
Nelson testified that when he began working at Cinamour, he believed it was legitimate. Slanaker took Nelson to the production location for From Mexico With Love. Nelson testified that he recognized Cinamour's logo and some of the actors in the film. Nelson looked at Cinamour's website and saw that it was a production and distribution company working in film and television. Nelson read that the Better Business Bureau rated Cinamour Triple A, with no complaints. Nelson learned that Cinamour was raising money for Red Water. In October 2007, Nelson followed Slanaker to Cinamour and began soliciting investments in Red Water.
Nelson testified that Slanaker prohibited him from associating with anyone else at Cinamour. The office manager testified that Slanaker often screamed at Nelson, who remained quiet and kept to himself, away from the other telemarketers.
Nelson testified [*45] that at Cinamour, he was given lead sheets and a script. If a call was met with interest, Nelson filled out a sheet and gave it to Slanaker, who sent an information package to the potential investor. Nelson would then call and go over the package using a preset script, answer questions, and try to persuade the prospect to sign the papers and send a check made out to Red Water Films.
Nelson testified that he did not know that the representations he made were false and insisted that he did not intend to defraud investors. He believed that the purpose of the script was to keep the telemarketers honest about what they told potential investors, not to give the telemarketers lies to tell. He also believed that Cinamour had $5.9 million in presale distribution contract commitments. Nelson acknowledged that he was getting paid for the sales he made but testified that he did not lie when he stated that no commissions were being paid, because what he received was a "management fee." Nelson did admit, however, that the Red Water private placement memorandum he sent to potential investors provided a misleading description of how and when the promoters and sales people would be paid.
Nelson testified [*46] that he thought the conference calls he participated in were to give status reports to people who had already invested. Nelson denied knowing that the calls were to "reload" investors or that Cinamour employees were playing the role of happy investors. Nelson was shown a script for a reloading conference call. The script identified him as the Vice President of Technology at View Partners. Nelson denied having seen or used the script or having read or heard that false description of his job and title, but the script was found on Nelson's office computer at Cinamour. The government pointed out that the script made clear the purpose of the call and the presence of the fake "other investors." The script contained a list of the Cinamour employees who participated in at least one reloading conference call playing the role of investors. The script also had handwritten notes about some of the victims who took part. Nelson denied that the notes were his. But another exhibit, which Nelson admitted to writing, had very similar handwriting. The government argued that the similarity between the two documents provided additional support for inferring that Nelson was lying about his role in the [*47] Red Water conference calls, about not knowing that Cinamour employees were acting as shills, and about not having seen scripts for the calls.
C. Baker's and Nelson's Challenges to Their Convictions
Baker and Nelson challenge the trial court's evidentiary rulings and jury instructions, the prosecutor's comments at closing, and the sufficiency of the evidence. They contend that if no one error justifies vacating their convictions, the cumulative effect does. We identify several errors, find them harmless as to Baker, but conclude that Nelson's conviction must be reversed.
1. The Challenges to the Evidentiary Rulings
We review the district court's evidentiary rulings for abuse of discretion. See United States v. Pineda-Doval, 614 F.3d 1019, 1031 (9th Cir. 2010).
b. The Lay Opinion Testimony
Baker and Nelson argue that the district court erred in allowing Allen Bruce Agler,7 who had worked in several movie telemarketing boiler rooms (including for Cinamour during the fundraising for From Mexico With Love between 2005 and 2007), to testify about boiler-room management, activity, and strategy. Agler's testimony included his opinions about the information and knowledge telemarketers have when they cold-call potential investors and when they close a deal. Agler's testimony was not admissible under Rule 702 of the Federal Rules of Evidence because [*53] the government did not give the defendants the notice required under Rule 16 of the Federal Rules of Criminal Procedure. See Fed. R. Crim. P. 16(a)(1)(G) (requiring, at the defendant's request, pretrial disclosure of expert witnesses and a written summary of their testimony). Baker and Nelson argue that this limit could not be avoided by admitting Agler's testimony as lay opinion testimony under Rule 701.
7 Agler also used the name Paul Kingman.
"The admissibility of lay opinion testimony under Rule 701 is committed to the sound discretion of the trial judge and his decision will be overturned only if it constitutes a clear abuse of discretion." United States v. Gadson, 763 F.3d 1189, 1209 (9th Cir. 2014) (quoting Nationwide Transp. Fin. v. Cass Info. Sys., Inc., 523 F.3d 1051 (9th Cir. 2008)). The government contends that plain-error review applies because Baker objected on other grounds, not raised on appeal, before moving to strike Agler's testimony as unnoticed expert testimony, and Nelson did not specifically adopt Baker's objections. But Baker's attorney repeatedly objected to Agler's testimony about whether investors ever read the private placement memoranda they were sent. The objections were that Agler was giving "an expert opinion without foundation," as well as hearsay. "[T]he matter was sufficiently brought to the attention of the district court" through Baker's objections for us to review for abuse of discretion. [*54] Gadson, 763 F.3d at 1201 n.3 (quoting United States v. Orm Hieng, 679 F.3d 1131, 1141 (9th Cir. 2012)).
Under Federal Rule of Evidence 701, a lay witness may testify "in the form of an opinion" if it is "(a) rationally based on the perception of the witness; (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue; and (c) not based on scientific, technical, or other specialized knowledge." Fed. R. Evid. 701. "Rule 701(a) contains a personal knowledge requirement." United States v. Lopez, 762 F.3d 852, 864 (9th Cir. 2014). "In presenting lay opinions, the personal knowledge requirement may be met if the witness can demonstrate firsthand knowledge or observation." Id. "A lay witness's opinion testimony necessarily draws on the witness's own understanding, including a wealth of personal information, experience, and education, that cannot be placed before the jury." Gadson, 763 F.3d at 1208. But a lay opinion witness "may not testify based on speculation, rely on hearsay or interpret unambiguous, clear statements." United States v. Vera, 770 F.3d 1232, 1242 (9th Cir. 2014).
Agler testified about his experience in working in telemarketing boiler rooms selling investments. He testified that:
o "[e]verybody that I've ever worked with will always stretch the truth and make out--outright lies especially in certain techniques";
o "[i]n my experience, the vast majority of people who invest do not read the private placement memorandum or if they do [*55] they read it on a limited basis, and they have no idea what it says";
o this was "absolutely" a "well-known fact" in the boiler rooms that he worked in; and
o investors relied on what telemarketers told them.
On cross-examination, Agler testified that "most investors never gave me an indication that they read the private placement memoranda" and he never brought "the subject up" when "he talked to them." When pressed on the basis for this opinion, Agler testified that he relied on his experience and the assumption that only those investors who asked a lot of questions about a memorandum had read it. On redirect, the government asked whether the fact that "investors did not read" private placement memoranda was "something that was openly discussed among closers that you worked with?" Agler responded, "sure." When asked if "it was a topic of discussion that investors don't read the [private placement memoranda]," he responded, "absolutely."
At the end of Agler's testimony, the prosecutor asked whether, "in all your own personal experience and all the closers who have worked in these rooms that you've spoken to, have you ever heard of any investor making any money on any of these investments?" [*56] Agler responded, "[n]o, I have not."
Baker and Nelson argue that Agler's testimony impermissibly opined on what the telemarketers who solicited and closed investments, including themselves, knew about what they were selling and about what the investors were doing and thinking. They argue that to the extent Agler expressed a lay opinion, he relied on speculation and hearsay, and to the extent he expressed an expert opinion based on specialized knowledge gained from working in boiler rooms, the government failed to give the notice required under Rule 702 of the Federal Rules of Evidence and Rule 16 of the Federal Rules of Criminal Procedure.
Agler had extensive personal experience working as a telemarketer in boiler rooms soliciting and closing investments, including in Cinamour films. But his testimony that investors did not understand the risks, that all telemarketers knew of and took advantage of this ignorance, and that telemarketers knew that investors never made any money, was largely based on statements he heard from unidentified telemarketers and investors, well beyond his own personal experience with investors. Our cases make clear that Rule 701 prohibits opinions based on such a foundation. See, e.g., United States v. Freeman, 498 F.3d 893, 904 (9th Cir. 2007) ("If Shin relied upon or conveyed hearsay evidence when testifying as a lay [*57] witness or if Shin based his lay testimony on matters not within his personal knowledge, he exceeded the bounds of properly admissible testimony.").8
8 The government did not argue that Agler's testimony about what other closers had told him was admissible under the coconspirator exception to the hearsay rule until oral argument in this court. The argument is both untimely and unpersuasive. Agler did not identify the Cinamour closers who made the hearsay statements. Although Rule 801(d)(2)(E) provides that statements made by a "party's coconspirator during and in furtherance of the conspiracy" are "not hearsay," Fed. R. Evid. 801(d)(2)(E), more information about who made the statements would be needed to establish that the persons were coconspirators and that the statements were in furtherance of the conspiracy. See, e.g., United States v. Mouzin, 785 F.2d 682, 692 (9th Cir. 1986) ("[B]efore a statement is that of a 'coconspirator' there must be independent proof of the defendant's and the declarant's status as members of the same ongoing conspiracy. In order to corroborate or refute this status, the litigants must know the identity of the declarant."). Because Agler's testimony about these other unidentified telemarketers was both vague and general, we cannot conclude on this record that the [*58] statements were made by Cinamour coconspirators or in furtherance of the Cinamour conspiracy.
Agler's testimony is different from the lay testimony that we have permitted law-enforcement officers to give. See, e.g., Gadson, 763 F.3d at 1208; United States v. Simas, 937 F.2d 459 (9th Cir. 1991). In those cases, the officers did not base their lay opinions on hearsay statements made by unidentified individuals. See Simas, 937 F.2d at 464 (no abuse of discretion in allowing FBI agents to interpret the defendant's own "vague and . . . incomprehensible" statements). In Gadson, we held that the district court did not abuse its discretion in admitting lay opinion testimony that the defendant's coconspirator "made these admissions to us [the police]" because the officer "did not testify as to the nature of 'these admissions,' repeat any assertion made by [the coconspirator], or suggest that the jury should consider any admission made by [the coconspirator] to be truthful." 763 F.3d at 1211-12. We emphasized that "an officer's interpretation of intercepted phone calls may meet Rule 701's 'perception' requirement when it is an interpretation 'of ambiguous conversations based upon [the officer's] direct knowledge of the investigation.'" Id. at 1207 (quoting Freeman, 498 F.3d at 904-05). Here, by contrast, Agler's opinions that all telemarketers knew that [*59] investors rarely--if ever--read any private placement memoranda and never received a return on their investments were based primarily on the statements of unidentified telemarketers and of unidentified investor-victims. And, unlike the record we considered in Gadson, Agler testified about the nature of statements by other, unidentified telemarketers and investors. Agler's testimony was not admissible as lay opinion testimony under Rule 701.
During closing argument, the prosecutor urged the jury to consider the statements Agler testified he heard to be truthful and encouraged the jury to rely on them:
Ladies and gentlemen, do you remember when Allen Agler testified and he told you that he committed fraud in this case and he pled guilty, and he stated that in all his experience as a telemarketer in boiler rooms raising money for movies, and in all his discussions with other people who were boiler room closers, not one single investor that he knew of in a movie investment from cold call telemarketing ever made a cent, not one?
. . . .
Remember, all the closers knew that no investor makes money from an independent movie where the money is raised by cold call telemarketing.
Agler testified that all victims [*60] ignored the written materials--including any risk-disclosure statements in the private placement memoranda--and instead relied exclusively on what the telemarketers orally promised in their sales pitches, and that all telemarketers knew and relied on victims following this pattern. Agler based his testimony on taking as true the contents of statements made by unidentified telemarketers and victims. The record is inadequate to allow us to conclude that a hearsay exception or exclusion applies.
The government argues that any error in admitting Agler's testimony under Rule 701 was harmless because he would have qualified as an expert under Rule 702. The government cites United States v. Mendoza, 244 F.3d 1037 (9th Cir. 2001), and United States v. Figueroa-Lopez, 125 F.3d 1241, 1246-47 (9th Cir. 1997). Both cases are distinguishable. In Mendoza, the defendant was tried and convicted for endangering the safety of an aircraft in flight after he called in a bomb threat to delay a flight so that his girlfriend would not miss it. See 244 F.3d at 1042-43. The government had originally given notice that the flight captain would testify but instead presented lay testimony from the first officer to show that the bomb threat endangered the aircraft's safety. See id. at 1043, 1047. On appeal, the defendant argued that the first officer was an undisclosed expert witness and [*61] that admitting his testimony made the trial unfair. See id. at 1046. We found that "the government had given notice that the captain of the flight would testify to emergency procedures, what occurred on [the flight], and endangerment," and "[f]or the purposes of a fair trial it was immaterial that the captain was not available, and that an equally qualified witness who had experienced the same factual circumstances, was substituted." Id. Unlike Nelson, the defendant in Mendoza had been given notice of the challenged testimony and its basis before trial and could prepare.
In Figueroa-Lopez, a special agent with the Drug Enforcement Administration testified about "the means utilized by drug traffickers to detect certain things, . . . and their patterns and other activities." Figueroa-Lopez, 125 F.3d at 1247. The officer did not rely on hearsay statements made by unidentified traffickers or others, taken as true. The record contained extensive evidence of the officer's training and experience in drug traffickers' methods, a common subject of expert opinion. Id. The record in this case, by contrast, provides less support to find Agler qualified as an expert or that his opinions were reliable, and what telemarketers "know" is not a common [*62] subject for Rule 702 expert testimony. The record does not present a basis to excuse the failure to provide the defense timely notice of Agler's Rule 702 expert testimony by holding it admissible as lay opinion testimony under Rule 701.
We consider below whether this error and others were harmless in light of the extensive evidence that was properly admitted.9
9 When we find evidentiary error, we typically review for harmlessness before considering other issues, reversing "only if such nonconstitutional error more likely than not affected the verdict." United States v. Tran, 568 F.3d 1156, 1162 (9th Cir. 2009). But "[w]here, as here, there are a number of errors at trial, 'a balkanized, issue-by-issue harmless error review' is far less effective than analyzing the overall effect of all the errors in the context of the evidence introduced at trial against the defendant." United States v. Frederick, 78 F.3d 1370, 1381 (9th Cir. 1996) (quoting United States v. Wallace, 848 F.2d 1464, 1476 (9th Cir. 1988)).
e. The Email Evidence About Baker
Baker asserts that the district court erred in admitting an email containing hearsay statements that he had been warned to stop giving potential investors false information about the investments. The email was admitted during the government's examination of Jennifer Nakamori, [*75] Cinamour's Los Angeles office manager during the time Baker worked for that office. Nakamori wrote the email to Glen Hartford in August 2002. It included the following statements:
Paul [Baker] brings in money because he's giving investors false information. We've given him 5 warning[s] already and he still can't get it right. . . . You [Hartford] are the one who told me that Paul [Baker] would be let go after one more warning. You told me this morning that we are accepting money from investors who've been given false promises. It sounds like we're just taking money from anyone. How can we make a movie this way? What's going to happen in the future? They may come back and you will be held liable. Paul, Evan, Matt, and everyone else will just walk away happy with their commission monies in their pockets.
Nakamori's information that Baker gave potential investors and victims false information came only from "[t]hings I heard in the office" and was "[j]ust rumors that I heard." Nakamori could not remember who said the "things" or spread the "rumors." Hartford told her that he had warned Baker not to give false information or make false promises about the investments. Nakamori could not remember hearing Hartford [*76] warn Baker.
Baker objected to the email and Nakamori's testimony about it. His objection was overruled and the email and related testimony were admitted. Baker renews his objection on appeal. We find an abuse of discretion in admitting the email and related testimony. Nakamori had no personal knowledge about whether Baker was making false statements to get victims to invest. Nor did she have personal knowledge about whether Baker had been repeatedly warned not to do this.
The government argues that the email and Nakamori's testimony about it are admissible because they were offered to show Baker's state of mind--his knowledge that what he was telling investors was false--rather than for the truth of the matter stated. The problem is that unless the email contents and related testimony were true, they are not relevant to show Baker's state of mind. The email does not show that Baker knew he was making false representations unless the statements that he was doing so and had been warned about it are accepted as true. The evidence was hearsay.
We consider below whether the error was harmless in light of the other evidence properly submitted to the jury. See Frederick, 78 F.3d at 1381.
4. Cumulative Error
"Even if no error individually supports reversal, the cumulative effect of numerous errors may support reversal." United States v. Inzunza, 638 F.3d 1006, 1024 (9th Cir. 2009) (citing United States v. Frederick, 78 F.3d 1370, 1381 (9th Cir. 1996)). "Where, as here, there are a number of errors at trial, 'a balkanized, issue-by-issue harmless error review' is far less effective than analyzing the overall effect of all the errors in the context of the evidence introduced at trial against the defendant." United States v. Frederick, 78 F.3d 1370, 1381 (9th Cir. 1996) (quoting United States v. Wallace, 848 F.2d 1464, 1476 (9th Cir. 1988)). "In those cases where the government's case is weak, a defendant is more likely to be prejudiced by the effect of cumulative errors." Id. "This is simply the logical corollary of [*93] the harmless error doctrine which requires us to affirm a conviction if there is overwhelming evidence of guilt." Id. (internal quotation marks omitted).
Although the district judge erred in admitting Agler's lay opinion testimony about what telemarketers know and intend, and in admitting the Nakamori email and related testimony, the errors were harmless in light of the overwhelming evidence against Baker. The evidence included voice recordings of Baker's calls with an undercover agent posing as a potential investor in Red Water. In the calls, Baker repeatedly lied. He told the agent that Cinamour had already secured $5.4 million presales contracts to distribute the film in 31 countries, guaranteeing a risk-free and profitable investment. He told the agent that there was already enough revenue from the presale contracts to guarantee a 110 percent return to the investors. He told the agent that investors would receive the 110 percent return in 8 to 10 months and triple their money in 2 years. He told the agent that the film's promoters and sales personnel would receive no money until the investors had received their money back with a profit, and that none of the fundraisers were [*94] receiving commissions. Baker's victims testified that he made the same statements to them. Baker's coconspirators testified about his false statements and role in the conspiracy, including his role in including false statements about commissions in the Red Water private placement memorandum. Finally, the jury heard that after the raid, Baker confessed to law-enforcement agents that he had lied in the call with the undercover agent about the presale contracts and the commissions.
In light of the overwhelming admissible evidence against him, the errors we have found do not require reversing Baker's conviction. See United States v. Ruiz, 710 F.3d 1077, 1080 n.1 (9th Cir. 2013) ("Finally, since the errors that occurred at trial were isolated, reversal for cumulative error is not warranted."). Baker's conviction is affirmed.
There was certainly evidence against Nelson, but it was not overwhelming. Nelson's victims testified that he too misrepresented the existence of presale distribution contracts, the resulting profit guarantee and the absence of risk, and the absence of commissions or other payments to promoters and sales personnel. Although Nelson denied these allegations at trial, he admitted using a script with those statements. Nelson [*95] also sent an email to one victim, Eliassen, promising that presales distribution contracts made the investment secure. Nelson testified that some unidentified person at Cinamour had told him at some unidentified time that the presales contracts described in the script did exist. Nelson told his victims that investors in Cinamour's prior movies had been successful even though his coconspirator, Stephanie Alarcon, testified that she and Nelson had talked about the fact that prior investors were unhappy because they had not made money. The evidence showed that Nelson told prospective investors and the victims who invested that filming on Red Water had begun or was about to begin. He admitted on the stand that filming had not started and was not about to start. Nelson testified that he did not reveal his 12.5 percent commission to the prospective investors or victims he talked to, and the evidence, including Nadav Shimoni's testimony and scripts, showed that Nelson was involved in the reloading conference calls.
There was also evidence favorable to Nelson's defense theory that he lacked the intent to defraud necessary to show that he willfully violated the securities laws. Nelson joined [*96] Cinamour much later than his codefendants, giving him less exposure to the fraudulent practices before the FBI's 2009 raid. He testified that he was only involved in a few reloading conference calls and then only for a brief period, and that he was unaware of the use of "shills" like Shimoni. Although we conclude that there was sufficient evidence to support each count of conviction, see infra Part II.C.5, the government has not met its burden to show that the evidentiary errors we have found were harmless. United States v. Vizcarra-Martinez, 66 F.3d 1006 (9th Cir. 1995) (evidence properly admitted was sufficient to support the conviction but the error in admitting evidence was not harmless, requiring reversal and remand). The inadmissible evidence of Nelson's subsequent employment at Big Gunn and the check he wrote to Slanaker, especially when refracted through the lens of Agler's testimony that all movie telemarketing operations are fraudulent and that all fronters and closers knew this, may have "substantially swayed" the jury in concluding that the government had met its burden of proving Nelson's knowledge and intent. See Freeman, 498 F.3d at 905.
The risk that the improperly admitted evidence affected the verdict is increased because the government's closing argument [*97] repeatedly encouraged the jury to rely on this evidence. The government argued during closing that Nelson, Baker, and Greenhouse "knew" that "there was no way these investors would ever make a dime" and that "they lied in order to get the people to invest their money." The government emphasized Allen Agler's testimony that "all the closers knew that no investor makes money from an independent movie where the money is raised by cold call telemarketing." And the government told the jury that "the clearest evidence" that Nelson had the intent to defraud while working at Cinamour was that he went to work at another "movie investment boiler room"--Big Gunn--after the FBI raided Cinamour.
Our review of the record leaves us without a "fair assurance" that the "jury was not substantially swayed by the error[s]" in convicting Nelson. See Freeman, 498 F.3d at 905. We conclude that the errors were not harmless and that they require us to reverse Nelson's conviction, vacate his sentence, and remand.
We (1) affirm Lloyd's sentence; (2) vacate Keskemety's sentence and remand for resentencing; (3) reverse Nelson's convictions, vacate his sentence, and remand; (4) affirm Baker's convictions but vacate his sentence and remand for resentencing; and (5) affirm Greenhouse's sentence.
AFFIRMED in part, REVERSED in part, VACATED in part, and REMANDED in part.
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