Reply Brief — Douglas L. Swenson, Petitioner v. United States

NO. 17-7809

____________________________________________________

IN THE SUPREME COURT OF THE UNITED STATES

June 4, 2018

____________________________________________________

Douglas Swenson - Petitioner

vs.

United States of America - Respondent.

________________________________________________

On Petition for a Writ of Certiorari to

The United States Court of Appeals

For the Ninth Circuit

________________________________________________

REPLY BRIEF FOR PETITIONER

________________________________________________

Angelo J. Calfo

CALFO EAKES & OSTROVSKY PLLC

CJA-Appointed Attorney for Petitioner

1301 Second Avenue, Suite 2800

Seattle, WA 98101

Telephone:

206-407-2200

Fax:

206-407-2224

Email:

angeloc@calfoeakes.com

ATTORNEY FOR PETITIONER

ii

TABLE OF CONTENTS

INTRODUCTION .......................................................................................................... 1

ARGUMENT .................................................................................................................. 2

This Court Should Grant Review to Correct the Ninth Circuit’s

Erroneous Materiality Instruction and Resolve a Circuit Split on the

Proper Interpretation of this Court’s Precedent. ........................................ 2

This Court Should Grant Review to Resolve a Circuit Split and Clarify

that the Willfulness Standard for Securities Fraud Is the Same as for

Other Federal Criminal Offenses. ............................................................... 6

The Ninth Circuit’s Misinterpretation of Rule 16 Is a Constitutional

Error Infecting a Core Aspect of Criminal Proceedings, Requiring this

Court’s Swift Reversal. ............................................................................... 10

Regardless of its Truth, the Ellison Email Was a Verbal Act Negating a

Conspiracy, and its Redaction Was Therefore Erroneous and Contrary to

the Law of Other Circuits. ......................................................................... 13

CONCLUSION............................................................................................................. 15

iii

TABLE OF AUTHORITIES

Cases

Bryan v. United States, 524 U.S. 184 (1998) ............................................................ 6, 7

Cheek v. United States, 498 U.S. 192 (1991)................................................................. 7

Cleveland v. United States, 531 U.S. 12 (2000) ............................................................ 9

Felton v. United States, 96 U.S. 699 (1877) .................................................................. 6

Heikkinen v. United States, 355 U.S. 273 (1958) .......................................................... 6

Liparota v. United States, 471 U.S. 419 (1985) ............................................................ 8

McNally v. United States, 483 U.S. 350 (1987) ............................................................ 9

Plumley v. Austin, 135 S. Ct. 828 (2015) .................................................................... 11

Ratzlaf v. United States, 510 U.S. 135 (1994) .......................................................... 6, 7

Rewis v. United States, 401 U.S. 808 (1971) ................................................................. 8

Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) ....................................................... 8

TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976) ................................... 3, 4

United States v. Aikins, 946 F.2d 608 (9th Cir. 1990),

as amended on reh’g (Oct. 2, 1991) .......................................................................... 14

United States v. Ajoku, 134 S. Ct. 1872 (2014) ............................................................. 9

United States v. Ajoku, 584 Fed. Appx. 824 (9th Cir. 2014) ........................................ 9

United States v. Ajoku, 718 F.3d 882 (9th Cir. 2013) ................................................... 9

United States v. Bruchhausen, 977 F.2d 464 (9th Cir. 1992)....................................... 9

United States v. Cerro, 775 F.2d 908 (7th Cir. 1985) ................................................. 10

United States v. Ferguson, 676 F.3d 260 (2d Cir. 2011) ............................................. 13

United States v. Johnston, 789 F.3d 934 (9th Cir. 2015) ........................................... 13

United States v. Lothian, 976 F.2d 1257 (9th Cir. 1992) ........................................... 13

United States v. Murdock, 290 U.S. 389 (1933) ............................................................ 6

United States v. O’Hagan, 521 U.S. 642 (1997) ............................................................ 7

United States v. Olano, 507 U.S. 725 (1993)................................................................. 8

United States v. Shellef, 507 F.3d 82 (2d Cir. 2007)..................................................... 9

United States v. Starr, 816 F.2d 94 (2d Cir.1987) ........................................................ 9

Williams v. Florida, 399 U.S. 78 (1970) ...................................................................... 10

Statutes

15 U.S.C. § 78ff(a) ...................................................................................................... 6, 7

17 C.F.R. § 230.500, et seq. ............................................................................................ 5

Other Authorities

“Case-in-Chief,” Black’s Law Dictionary (5th ed. 1979) ............................................. 12

“Evidence-in-chief,” Black’s Law Dictionary (7th ed. 1999) ....................................... 12

Fed. R. Crim. P. 16 advisory committee’s note (1974 Amendments)......................... 12

iv

Rules

Federal Rule of Criminal Procedure 16 .......................................................... 10, 11, 12

1

INTRODUCTION

Douglas Swenson was convicted of willful securities fraud even though the jury

never found he made material misrepresentations or omissions, as defined by this

Court, and never found he knew he was breaking the law. The Ninth Circuit upheld

these convictions because it, along with a few of its sister circuits, has endorsed jury

instructions for materiality that include only half of this Court’s materiality test and

instructions for willfulness that anomalously single out securities fraud for a lower

mens rea standard than other federal offenses proscribing “willful” conduct.

Mr. Swenson’s conviction also turned on an unprecedented and incorrect

interpretation of Federal Rule of Criminal Procedure 16’s reciprocal discovery

obligation—now endorsed by the Ninth Circuit—which required Mr. Swenson to

preview his cross-examination for the government, ceding his Sixth Amendment right

to effective cross-examination.

As the government’s response highlights, this

interpretation ignores the history and constitutional dimensions of the rule.

Finally, in the Ninth Circuit, unlike other circuits, verbal acts demonstrating

a lack of conspiracy and showing a defendant’s innocent state of mind are excluded

under the rule against hearsay. Mr. Swenson was thus convicted because the jury

never got to see key portions of an email demonstrating his innocent state of mind.

The government largely ignores the circuit conflict surrounding Rule 801(c), instead

raising a double-hearsay argument, but its argument misses that Mr. Ellison’s

statement of non-conspiracy with Mr. Swenson was relevant whether true or not.

2

While the government would prefer the Court not to correct these defects, they

infect thousands of cases, and this Court’s intervention is urgently needed.

ARGUMENT

This Court Should Grant Review to Correct the Ninth Circuit’s

Erroneous Materiality Instruction and Resolve a Circuit Split on the

Proper Interpretation of this Court’s Precedent.

If this Court wants a lucid demonstration of the error in the Ninth Circuit’s

materiality standard for securities fraud cases, it need look no further than the

government’s harmless error argument. The government’s argument falls squarely

into the trap laid by the Ninth Circuit, focusing solely on the alleged misstatements

and omissions in a vacuum, while entirely ignoring the context in which DBSI sold

its securities. See Brief for the United States in Opposition (“Opp.”) at 14–15. The

government cherry-picks a handful of instances in which it claims DBSI’s Private

Placement Memoranda (“PPMs”) inadequately disclosed information, but it ignores

uncontested evidence that DBSI fully disclosed accurate information to third-party

due-diligence providers, whose reports were available to investors, and to the broker–

dealers, who were legally responsible for investigating DBSI’s offerings and advising

their clients on investment decisions. These other disclosures constitute the “total

mix” of information the jury should have considered—but was instructed not to.

To take just one example, the government claims DBSI’s balance sheets

obscured loans to technology companies by including the loan amounts in a net

number in which the debt owed to DBSI on the loans was netted against debt owed

by DBSI. Opp. at 4. But DBSI’s 2008 Notes PPM stated the exact amount of the debt

3

owed by DBSI and disclosed that DBSI had made “strategic acquisitions and

investments in emerging technology companies.” AER 3935, 3946. Moreover, every

PPM stated that DBSI’s net worth was “in the form of nonliquid and noncurrent

assets, consisting of … extensive interests in other operating business entities.” AER

2179. And third-party due-diligence reports from throughout 2008 confirmed that

DBSI had made substantial, potentially risky loans to the Stellar companies. See,

e.g., AER 4581–82 (Feb. 2008 due-diligence report to broker–dealers: “Your clients

should . . . understand that up to forty percent (40%) of the gross Offering proceeds

will be loaned to DBSI’s technology companies, which may have substantial debt and

may have insufficient revenue to service their debt and cover their other operating

costs. . . . [Y]our clients must be aware that much of DBSI’s net worth consists of

illiquid assets.”); 4715 (Sep. 2008 due-diligence report including same warning). A

similar review of the “total mix” debunks each of the misrepresentations the

government alleges. Compare Opp. at 3–4, with Pet. Opening Br. at 48–88.

In effectively telling the jury it could ignore this and other similar evidence,

the jury instructions violated TSC Industries, Inc. v. Northway, Inc., which held that

alleged misrepresentations must be considered in the context of “the ‘total mix’ of

information made available” to investors. 426 U.S. 438, 449 (1976); see also id.

(“[T]he standard . . . contemplate[s] . . . a showing . . . that, under all the

circumstances, the omitted fact would have assumed actual significance in the

deliberations of the reasonable shareholder.” (emphasis added)). In this case, that

would mean focusing not on isolated sentences in DBSI’s PPMs, but on the whole

4

range of information DBSI “made available” to investors, including elsewhere in the

PPMs, through third-party due-diligence reports, and through the sophisticated

broker–dealers who, by law, mediated each purchase of DBSI securities.

The

government’s analysis, borrowed from the Ninth Circuit, runs afoul of this Court’s

clear direction in TSC Industries.

The government counters that the Ninth Circuit did not err because the “total

mix” language is “simply [an] alternative way of conveying the [materiality]

standard,” Opp. at 10, not an independent test. But the “total mix” test is not mere

surplusage. To the contrary, it clarifies the open-ended question whether “there is a

substantial likelihood that a reasonable shareholder would consider [a fact]

important in deciding how to [act].” TSC Industries, 426 U.S. at 449. Application of

the “total mix” test is not optional; TSC Industries uses mandatory language—which

the government ignores—requiring that “there must be a substantial likelihood that

the disclosure of the omitted fact would have been viewed by the reasonable investor

as having significantly altered the ‘total mix’ of information made available.” Id.

The Ninth Circuit’s failure to instruct on the dispositive importance of context

permits juries to convict defendants by considering particular statements in a

vacuum, ignoring how those statements fit into the larger picture or whether there

was other information “made available” to investors that clarified or informed the atissue statements. Put another way, by excising the “total mix” standard, the Ninth

Circuit’s instruction threatens offerors of securities with liability unless they can

ensure that all potential investors actually obtain all potentially relevant

5

information. This is precisely what this Court sought to avoid by adopting the “total

mix” test. Id. at 448–49 (“[I]f the standard of materiality is unnecessarily low . . .

management’s fear of exposing itself to substantial liability may cause it simply to

bury the shareholders in an avalanche of trivial information . . . .”).1

The government tries to sweep aside the square circuit conflict by asserting

that none of the case cited by petitioners turned on the definition of materiality. Opp.

at 13. But even were this true, the circuits state the materiality standard in ways

that cannot be harmonized with each other. See Ellison Pet. at 16–19. While most

follow this Court’s direction and apply the “total mix” standard, the Fourth, Sixth,

and Ninth have gone astray, adopting a watered-down importance-only standard. Id.

Review by this Court is needed to fix this circuit split and clarify the dispositive

importance of context to the materiality standard. And this case presents an ideal

vehicle for this Court to do so. Although the consequences of an improper materiality

instruction may ordinarily be nearly impossible to discern, the facts of this case make

the consequences patent. DBSI’s Regulation D security offerings were sold through

licensed broker–dealers, to whom DBSI made itself available to answer questions,

and were vetted by independent due-diligence reports, which were made available to

investors and their representatives. Pet. at 4–5. Yet the Ninth Circuit Model Jury

Instruction given in this case permitted the jury to ignore those sources of

1 The Ninth Circuit standard also conflicts with Regulation D, which does not require offerors like

DBSI to provide financial information, but instead requires they make themselves available to broker–

dealers to provide the information the broker–dealers deem material in advising their clients. 17

C.F.R. § 230.500, et seq.; AER 377. DBSI’s Director of Sales Operations testified he provided broker–

dealers will all the information they requested to advise their clients. JER 7274, 7315, 7317, 7633.

6

information (i.e., the total mix of information made available to investors) and find

Mr. Swenson guilty based solely on isolated statements in DBSI’s PPMs.

This Court Should Grant Review to Resolve a Circuit Split and

Clarify that the Willfulness Standard for Securities Fraud Is the

Same as for Other Federal Criminal Offenses.

The trial court’s instruction on willfulness cannot be reconciled with this

Court’s holding that “to establish a ‘willful’ violation of a statute, ‘the Government

must prove that the defendant acted with knowledge that his conduct was

unlawful.’” Bryan v. United States, 524 U.S. 184, 191–92 (1998) (quoting Ratzlaf v.

United States, 510 U.S. 135, 137 (1994)). And indeed, the government does not even

try to do so. Instead, the government relies on pre-Bryan cases to argue Bryan does

not say what it obviously says. Opp. at 16. But the cases the government cites to

undermine Bryan were in fact cited in Bryan; even so, this Court squarely held that

proving a “willful” violation of a criminal statute requires the government to prove

the defendant knew his conduct was unlawful. Bryan, 524 U.S. at 191 & n.13 (citing

Heikkinen v. United States, 355 U.S. 273, 279 (1958); United States v. Murdock, 290

U.S. 389, 394 (1933); and Felton v. United States, 96 U.S. 699, 702 (1877)).

Bryan and its progeny notwithstanding, the government would single out

securities fraud for a lower mens rea requirement. But its argument is based on a

misinterpretation of the relevant statutory language. Opp. at 16–17. 15 U.S.C. § 78ff

provides that a person who “willfully violates” securities statutes may be subject to

fine and imprisonment, but a person who violates an SEC “rule or regulation” who

“proves that [they] had no knowledge of such rule or regulation” is subject only to a

7

fine. Contrary to the government’s argument, however, this does not imply a lower

standard of willfulness for securities fraud than for other offenses. Rather, it creates

a higher standard of willfulness for unsophisticated securities sellers.

In cases

“involv[ing] highly technical statutes,” Congress sometimes “‘carv[es] out an

exception to the traditional rule’ that ignorance of the law is no excuse and require[s]

that the defendant have knowledge of the law” he is accused of violating. Bryan, 524

U.S. at 194–95 (quoting Cheek v. United States, 498 U.S. 192, 200 (1991), and citing

Ratzlaf, 510 U.S. at 149). That is, defendants must know of the particular law they

are accused of breaking. For all other statutes criminalizing willful conduct, however,

the government need only prove the defendant “knew that his conduct was unlawful.”

Id. at 195.

Section 78ff(a) incorporates this two-step willfulness inquiry. For defendants

whose conduct violates the statute itself and who know their conduct is generally

unlawful, or for defendants who know their conduct violates a specific SEC rule or

regulation promulgated thereunder, Congress has prescribed incarceration. But for

those defendants accused only of violating an SEC rule or regulation, not the statute

itself, who, while knowing their actions may have been unlawful, were not aware of

the particular rule or regulation they violated, Congress has elected to impose only a

fine.

This statutory structure is perfectly consistent with Bryan’s holding that

“willfulness” requires defendants to know their conduct was unlawful.

The “unusual[ly] . . . open-ended” nature of the securities fraud statute makes

it even more urgent that this Court give content to the statute’s willfulness

8

requirement.

United States v. O’Hagan, 521 U.S. 642, 691 (1997) (Thomas, J.,

concurring in part and dissenting in part).

Given the statute’s breadth, it is

particularly important that the government be required to prove a defendant knew

his conduct was unlawful. See Liparota v. United States, 471 U.S. 419, 427 (1985)

(“[R]equiring mens rea is in keeping with our longstanding recognition of the

principle that ‘ambiguity concerning the ambit of criminal statutes should be resolved

in favor of lenity.’” (quoting Rewis v. United States, 401 U.S. 808, 812 (1971))).

This Court’s review is thus needed to clarify the mens rea requirement of the

securities fraud statute, and to resolve a circuit split.

The government nevertheless argues that this is not the right case to do so

because review here would be under the plain error standard. Opp. at 19–20. The

government is incorrect. Ellison Reply at II.4. But even were that standard required,

it is met here. First, the error here was “clear under current law” because the trial

court’s jury instruction was directly contrary to Bryan’s holding (reaffirmed more

recently in Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57 n.9 (2007)) that “willfulness”

requires proof the defendant knew his conduct was unlawful. United States v. Olano,

507 U.S. 725, 734 (1993). Moreover, the error “affect[ed] substantial rights”—i.e.,

prejudiced Mr. Swenson—because unchallenged evidence shows that the defendants

did not, in fact, believe their conduct to be illegal. Id. at 736. Most notably, Matt

Duckett, DBSI’s Vice President of Finance responsible for preparing the company’s

financial statements, specifically testified he did not believe he was doing anything

unlawful in preparing those statements. JER 5389. He denied that there was fraud

9

and testified that all “the data was there” on the financial statements such that a

sophisticated reader—i.e., the only investors permitted to buy DBSI’s Regulation D

securities—could understand the company’s financial circumstances. JER 5391.

The government argues there is no prejudice because the jury was instructed

it had to find an intent to deceive, which necessarily implied a finding of knowledge

of unlawfulness (Opp. at 20), but this argument cannot survive United States v.

Ajoku. In Ajoku, the jury concluded “that Ajoku knowingly provided false information

to Medicare investigators.” 718 F.3d 882, 888 (9th Cir. 2013). Despite this, this Court

vacated the judgment because the jury had not been properly instructed on

willfulness, 134 S. Ct. 1872 (2014), and the Ninth Circuit remanded for a new trial,

584 Fed. Appx. 824 (9th Cir. 2014). Were it true that intent to deceive necessarily

implied knowledge of unlawfulness, there would have been no need to vacate and

retry Ajoku. Nor would there ever be a need for a court to give a proper willfulness

instruction in a case sounding in fraud.

The government’s argument that an intent to deceive necessarily implies

knowledge of unlawfulness is also wrong on the merits. For example, the securities

offeror who intends to deceive investors about a non-material fact, or who intends to

deceive investors but with no intention to despoil them of their property, has not

knowingly broken the law. See, e.g., Cleveland v. United States, 531 U.S. 12, 15

(2000); McNally v. United States, 483 U.S. 350, 360 (1987); United States v. Starr, 816

F.2d 94, 96 (2d Cir. 1987); United States v. Bruchhausen, 977 F.2d 464, 467–68 (9th

Cir. 1992); United States v. Shellef, 507 F.3d 82, 107–08 (2d Cir. 2007).

10

The Ninth Circuit, along with the Second and Eighth, permits juries to find a

defendant guilty of willfully violating the securities fraud statute without finding that

the defendant knew his conduct was unlawful—in clear derogation of this Court’s

holding in Bryan and similar cases. This Court should grant review to bring the law

of the circuits in compliance with this Court’s decisions.

The Ninth Circuit’s Misinterpretation of Rule 16 Is a Constitutional

Error Infecting a Core Aspect of Criminal Proceedings, Requiring this

Court’s Swift Reversal.

The government has no response to the constitutional problems raised by the

trial court’s Rule 16 order. The Ninth Circuit’s reading of Rule 16 requires defendants

to preview their cross-examination for the government, in violation of their Sixth

Amendment right to effective cross-examination. See United States v. Cerro, 775 F.2d

908, 915 (7th Cir. 1985). The Ninth Circuit amplified this unconstitutional prejudice

by endorsing the trial court’s extremely narrow definition of impeachment evidence

as limited to “prior inconsistent statements,” and by eroding Petitioners’ workproduct protection in requiring them to identify for the government documents from

the government’s own production. Pet. at 18.

The government laments that a contrary reading—one that comports with the

well-established definition of case-in-chief as a discrete phase of trial—would limit

the defendant’s discovery obligations to cases in which he or she “asserted an

affirmative defense or planned to put on his or her case after the government rested.”

Opp. at 21 (quoting Pet. App. 33a–34a). But this is a feature of our constitutional

design—not a bug to be squashed. In America, a defendant is never obligated to put

11

on a case to prove his innocence. Williams v. Florida, 399 U.S. 78, 112 (1970) (Black,

J., concurring in part and dissenting in part). The Ninth Circuit has now held

otherwise, concluding a defendant puts on a “case-in-chief,” and is therefore obligated

to produce discovery, whenever he challenges the government’s case through crossexamination (with anything other than prior inconsistent statements of witnesses).2

The government tries to minimize this problem by saying that defendants can

always forego discovery if they do not want to reveal their cross-examination. Opp.

at 24. But constitutional rights are not bargaining chips. The government cannot

demand defendants give up their rights to effective cross-examination and silence in

order to learn the facts of the government’s case against them. And yet, as the

government suggests, the Ninth Circuit now forces this choice upon thousands of

defendants in nine states and two territories comprising nearly 20% of the U.S.

population. And its unprecedented order will no doubt pave the way for more and

more courts to follow.3

Constitutional flaws aside, the Ninth Circuit’s interpretation of Rule 16 is also

incorrect as a matter of statutory interpretation. Substantial pre- and post-Rule 16

authority from this Court and the circuit courts almost universally defines “case-inchief” as a discrete phase of trial.

See Pet. at 18; Ellison Pet. at 26–27.

The

2 Here, Mr. Swenson elected to put on a defense case.

Contrary to the government’s claim, Opp. at 5,

he did produce materials that he intended to introduce through his own witnesses. AER 5885–92.

3 While the Ninth Circuit’s opinion was unpublished, it will no doubt be relied upon.

Its unpublished

status should not shield it from review. See Plumley v. Austin, 135 S. Ct. 828, 831 (2015) (Thomas, J.,

dissenting from denial of certiorari) (criticizing Court of Appeals for “announc[ing] a rule that is at

odds with the decisions of this Court and Courts of Appeals” and doing so “in an unpublished opinion

that preserves its ability to change course in the future”).

12

government tries to dodge these contrary authorities by saying that these cases did

not arise under Rule 16 and hypothesizing that maybe the term means something

different in Rule 16 than it does everywhere else. Opp. at 23. But the government

cannot provide any reasoned basis for singling out Rule 16 for an anomalous

definition of the term.

The government engages in historical “analysis” of the Rule to argue that

“case-in-chief” as currently used in the rule really means “evidence in chief,” which

“is most naturally read to include . . . evidence offered during cross-examination.”

Opp. at 21–22. But the government is wrong: committee notes from the original

version of the rule clarify that “evidence in chief” means “evidence” the defendant

“intends to use . . . in his case in chief.” Fed. R. Crim. P. 16 advisory committee’s note

(1974 Amendments); see also id. (“Subdivision (b)(1)(A) provides that the defendant

shall disclose any documents and tangible objects which . . . he intends to introduce

in evidence in his case in chief.”).4

The government’s history gets it exactly

backwards: the “stylistic” switch from “evidence in chief” to the well-understood “casein-chief” merely confirms that Rule 16 has always required the disclosure only of

evidence the defense intends to use with its own witnesses—i.e., in its “case-in-chief.”5

The Ninth Circuit’s ruling upends this longstanding, well-understood, and

The government concedes the version of Black’s Law Dictionary published shortly after the

Committee notes defined case-in-chief as “[t]hat part of a trial in which the party with the initial

burden of proof presents his evidence after which he rests.” Opp. at 22 n.9 (quoting “Case-in-Chief,”

Black’s Law Dictionary (5th ed. 1979)).

4

5 Indeed, at the time the switch was made, Black’s Law Dictionary defined “evidence-in-chief” as

“[e]vidence used by a party in making its case-in-chief.” “Evidence-in-chief,” Black’s Law Dictionary

(7th ed. 1999) (emphasis added). The government’s argument that evidence-in-chief is broader than

case-in-chief is meritless.

13

constitutionally balanced interpretation of the Rule, opening the floodgates for

district courts to follow. This Court should grant review to halt this misdevelopment

in its tracks.

Regardless of its Truth, the Ellison Email Was a Verbal Act Negating

a Conspiracy, and its Redaction Was Therefore Erroneous and

Contrary to the Law of Other Circuits.

The government spends almost its entire argument asserting that the redacted

portions

of

the

Ellison

email—discussing

Mr.

Ellison’s

agreement

with

Mr. Swenson—are hearsay because they were only relevant insofar as Mr. Ellison

accurately reported his conversation with Mr. Swenson. Opp. at 27–29. In fact, Mr.

Ellison’s statements are relevant whether they are true or not. What matters is that

Mr. Ellison thought they were true—i.e., that he reported them as fact. “The essence

of a conspiracy is a ‘meeting of the minds.’” United States v. Johnston, 789 F.3d 934,

940 n.1 (9th Cir. 2015). Similarly, under principles of co-schemer liability, only

“knowing participants in the scheme are legally liable for their co-schemers’” conduct.

United States v. Lothian, 976 F.2d 1257, 1263 (9th Cir. 1992) (internal quotation

omitted).

Mr. Ellison’s belief that he and Mr. Swenson agreed to fully disclose

financial information, standing alone, negates any allegation that they had a meeting

of the minds to do the opposite or that they knowingly participated in a joint scheme.

Even if Mr. Ellison were wrong about Mr. Swenson’s words, the mental impression

he was left with is the important point and renders the entire email non-hearsay.

Courts have admitted this type of reporting statement to establish a conspiracy

or a criminal offense. In United States v. Ferguson, 676 F.3d 260, 286 (2d Cir. 2011),

14

the court admitted as non-hearsay an email memorializing that an unknown person

advised one of the alleged co-conspirators of the “reputational risk” involved in a

transaction. Id. at 285. The government could have made the same argument it

makes here, that the email was relevant to the co-conspirator’s state of mind only if

it accurately reported that the unknown person advised the co-conspirator of the risk.

The statement was admitted and upheld by the Second Circuit, however, because it

was offered only “for the purpose of showing that the statement was made.” Id. at

286. Similar is United States v. Aikins, 946 F.2d 608, 615 (9th Cir. 1990), as amended

on reh’g (Oct. 2, 1991), in which the government moved to admit a certified record,

which included a U.S. official’s statement that Panama consented to enforcement

against the individuals on a vessel found in Panamanian waters. Id. at 614. The

Ninth Circuit admitted the statement of Panama’s consent as a verbal act outside the

definition of hearsay. The court did not refuse to admit the document because the

certifying official might not have accurately reported Panama’s consent. Instead, the

court admitted the statement, because Panama’s consent was a verbal act that bore

significance independent of the truth of the assertion. Id. at 614–15. Likewise,

Mr. Ellison’s statement of Mr. Swenson’s agreement has legal significance not for the

words themselves, but because the statement was made, and for the effects those

words had on Mr. Ellison and the liability of the parties. As with the cases above, the

statements are probative regardless of whether they were accurately reported.

Aside from their argument that Mr. Ellison’s reporting of his agreement with

Mr. Swenson creates a bar to admission, the government fails to contest

15

Mr. Swenson’s other arguments on this issue. The government does not dispute that

a statement negating a conspiracy can be a verbal act the same as a statement

establishing a conspiracy. See Opp. at 27–28. The government does not dispute that

the statements are probative of the parties’ states of mind. See Opp. at 28. And the

government’s assertion that there is no circuit conflict is exclusively based on its

contention that the statement at issue is double hearsay. See Opp. at 29–30. In sum,

the government’s argument on the Ellison email hinges entirely on its incorrect claim

that the email is relevant only insofar as Mr. Ellison accurately reported.

As

discussed above, however, the statement in the email has significance independent of

whether it was accurately reported by Mr. Ellison.

Finally, the government’s contention that the email’s redaction was harmless

is meritless. While it is true that the jury had the PPMs discussed in Mr. Ellison’s

email, the jury instructions asked them to determine the petitioners’ intent in

publishing the PPM disclosures.

The Ellison email was the only direct,

contemporaneous evidence bearing on the petitioners’ intent in drafting the PPMs,

and it shows that Messrs. Swenson and Ellison wanted to ensure fulsome disclosure

of DBSI’s financial picture. It further shows there was no conspiracy or joint scheme.

As such, its redaction was not harmless.

CONCLUSION

The petition for a writ of certiorari should be granted.