United States District Court, E.D. Kentucky, Central Division, Frankfort
MEMORANDUM OPINION & ORDER
GREGORY F. Van TATENHOVE, District Judge.
On February 20, 2015, the Government provided notice of its intention to use three of Henry Ramer's prior bad acts as evidence against him at trial. [R. 221.] Ramer has now moved to exclude the use of that evidence. [R. 274.] For the reasons stated below, Ramer's motion will be GRANTED in PART and DENIED in PART.
On October 9, 2014, Ramer was charged by superseding indictment with twenty-nine counts of mail fraud, a single count of conspiracy to commit money laundering, and one count of selling unregistered securities. [R. 51.] In anticipation of trial, the Government filed notice of its intent to present Ramer's prior bad acts as evidence at trial. [R. 221.] These prior bad acts include: 1) a November 7, 1989 cease and desist Order issued by the Arizona Corporation Commission (ACC); 2) a December 12, 2003 desist and refrain order issued by the California Department of Corporations (CDC) which prohibited Ramer and the other officers from offering for sale or selling unqualified securities; and 3) the fact that Ramer was a sales person for Hollywood Auditions, a company that was the subject of numerous consumer complaints. [R. 221.] Ramer objects to the admission of all of the above. [R. 274.] In response, the Government first argues that it should be able to present to the jury the existence of both the 1989 cease and desist order and also the 2003 desist and refrain order as background or res gestate evidence. [R. 281 at 1-4.] Second, the Government argues that all of its noticed evidence is also admissible under FRE 404(b). [R. 281 at 4-8.]
In limited circumstances the Government may introduce evidence of past conduct if the conduct is sufficiently tied to the presently charged offense. As has been explained by the Sixth Circuit:
[p]roper background evidence has a causal, temporal or spatial connection with the charged offense. Typically, such evidence is a prelude to the charged offense, is directly probative of the charged offense, arises from the same events as the charged offense, forms an integral part of a witness's testimony, or completes the story of the charged offense.
United States v. Marrero, 651 F.3d 453, 471 (6th Cir. 2011) (citations omitted). When background or res gestae evidence is presented in this way, it is not subject to the strictures of Rule 404(b). United States v. Adams, 722 F.3d 788, 810 (6th Cir. 2013) ( citing United States v. Clay, 667 F.3d 689, 697 (6th Cir. 2012)). Here, the Government argues that evidence of Ramer's 1989 cease and desist order and also the 2003 desist and refrain order are "intrinsic to, " and "directly probative" of, the mail and securities fraud allegations and, therefore, admissible background evidence. [R. 281 at 1-4.]
First, despite the fact that the Arizona and California orders were issued over ten years ago, the Government argues that the acts are sufficiently connected because they are "intrinsic to" the present allegations. [R. 281 at 1-3.] It is the Court's responsibility to determine whether the evidence has a sufficient "causal, temporal or spatial connection with the charged offense." Marrero, 651 F.3d at 471(quoting Hardy, 228 F.3d at 748). In Counts 1-29 of the Superseding Indictment, Ramer is charged with mail fraud. [R. 51-1.] Therein it is alleged that Ramer failed to disclose "material facts" to investors, one being "[t]hat the principals in the business were the subjects of state regulatory cease and desist orders for selling unregistered securities." [ Id. at 7.] To prove mail fraud, the Government must show that "the scheme included a material misrepresentation or concealment of a material fact." Sixth Circuit Pattern Jury Instructions, 10.01 Mail Fraud (18 U.S.C. § 1341). In Count 31, where Ramer is charged with selling unregistered securities, the Government alleges that Ramer did "make untrue statements of material facts and omit to state material facts necessary in order to make the statements made...not misleading." [R. 51-1 at 13.] As articulated by the Government, information is "material" when "there is a substantial likelihood [that] a reasonable investor would have considered it important in deciding whether to buy." United States v. Sayre, 434 F.Appx. 622, 623 (9th Cir. 2011) ( citing Basic Inc. v. Levinson, 485 U.S. 224, 231-232 (1988)). The Government argues that investors would have considered Ramer's history of being ordered to cease and desist from the sales of certain securities as important when deciding whether or not to invest. And so, they argue that Ramer's past conduct is admissible to show that he made material misrepresentations when promoting the scheme at issue.
The Eleventh Circuit faced a substantially similar question in United States v. Rafferty, where the defendant was charged with securities fraud and the Government was tasked with proving that he "omit[ed] material facts in communications with investors." 296 F.Appx. 788, 794 (11th Cir. 2008). In that case, the Eleventh Circuit affirmed the district court's ruling that evidence of the defendant's prior securities fraud convictions, a permanent injunction entered against the defendant, and two civil fraud judgments were correctly admitted. Id. The Court found no abuse of discretion when the district court adopted the Government's argument that the above noted evidence was "part of the offense charged and thus intrinsic, as witnessed by the reference to the specific material omissions." Id. at 795.
The Government also argues that evidence of Ramer's cease and desist orders are "inextricably intertwined" to the current charges because they "provide part of the narrative of the fraud." [R. 281 at 3-4.] Promotional materials lauded that the business was run by "experienced and proven oil producers who had been in the business for 30 or 40 years." [R. 281 at 3.] As characterized by the Government, Ramer's "fraudulent mischaracterization and exaggeration of his oil production experience" serves as both a "prelude to the charged offense" and "completes the story of the charged offense." [R. 281 at 3 (quoting Adams, 722 F.3d at 810).]
To obtain a conviction, the Government must prove that Ramer made material misrepresentations or concealed material facts from investors. Whether or not Ramer is, as was represented to his investors, an "experienced and proven" oil producer, or a fraud, is probative of whether such misrepresentations were made. Consequently, references to the above cease and desist orders are admissible without considering Rule 404(b) because ...