The First Circuit on Friday confirmed a California attorney’s conviction over a 3 million inventory pump-and-dump, confirming the refection of his acquittal motion and stating that even though under his “novel theory” co-conspirators could sell unregistered stock, he still told “confessed lies” that allowed fraud.
In a 15-page ruling, the three-judge panel supported the jury verdict against lawyer Richard Weed, who had been detained last year in Massachusetts federal court for his role in a scheme that enabled two prior stockbrokers to acquire free inventory in a fighting sports ticket broker and market it into unwitting investors. U.S. District Court Judge Douglas P. Woodlock then sentenced Weed to four years in prison for his part in the securities fraud.
Weed filed an appeal, and in June his attorney contended to the First Circuit that Weed’s misrepresentations in comment letters to transport representatives stating the co-conspirators were exempt by a Securities Act rule requiring enrollment of a security prior to its sale did not matter since Weed back then had just cited the incorrect part of federal law.
In its Friday judgment, the appellate panel pointed out that the government’s assertion that since Weed made the contention for the very first time when he transferred for post-trial judgment of acquittal, it hadn’t been preserved for appeal purposes.
“Because Weed’s claims are easily disposed of on the merits, we decline to decide this preliminary question and assume, favorably to Weed, that the de novo standard of review governs,” the First Circuit held.
Trial evidence demonstrated that from 2008 to 2013, Weed and two prior stockbrokers, Coleman Flaherty and Thomas Brazil, conducted their pump-and-dump scheme working with a public “shell” business that Flaherty had obtained from Weed in 2008, the First Circuit states.
So as to dump overvalued inventory on the public marketplace, Weed had falsely told inventory transfer agents that the securities have been exempt from registration under Rule 144, which places certain limitations on the resale value of securities held by men and women who control businesses.
“As mentioned previously, a vendor can benefit from the safe harbor if he’s a non-affiliate of this issuer and meets the other listed criteria,” the panel stated.
Weed’s letters stated firm affiliates Brazil and Flaherty — that pled guilty and testified against Weed — weren’t in charge of the firms.
On appeal, Weed argued that the securities were, in actuality, exempt for another reason, under Part 3(a)(9) of the Securities Act.
Weed maintained that the exemption applies not only to the market from debt into common stock, but also additional sales of the frequent stock in perpetuity.
The First Circuit stated Weed’s criminal conviction was about the lawyer’s fraudulent activities, no matter the enrollment requirement.
” Even assuming that the exemption applied and the conspirators were thus entitled to receive freely tradable shares, that fact would not excuse Weed’s resort to misrepresentations to help Flaherty and Brazil obtain the stock,” the appellate court said.