People v. Clem

Opinion

CHRISTIAN, J.

After a nonjury trial, Billy M. Clem and Walter Mengel appeal from a judgment which fined each of them $50 for each of six counts of selling securities without first qualifying the securities with the Commissioner of Corporations (Corp. Code, §§ 25110, 25540).

Appellants formed three limited partnerships for the purpose of raising money to develop silver mines in Nevada. Without qualifying the securities with the Commissioner of Corporations as required by section 25110 of the Corporations Code,

1

appellants sold interests in the limited partnerships to the public and capitalized their ventures in a total amount exceeding $300,000. Learning that they might be operating unlawfully, appellants arranged to buy back the interests of some of the investors; others consented to the conversion of their partnership interests into shares

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of stock in a new corporation. The trial court determined that the issuance of corporate stock did not violate California law because the transactions took place in Nevada. The ventures soon failed, and substantial losses were sustained by investors.

Appellants contend that they should not have been found guilty in the absence of evidence that they acted with criminal intent. The appeal turns on the construction of the penalty provisions of the Corporate Securities Law of 1968 (Stats. 1968, ch. 88, operative Jan. 2, 1969). Section 25110 makes it “unlawful for any person to offer or sell in this state any security in an issuer transaction . . . unless such sale has been qualified . . .” Criminal penalties are provided in section 25540: “Any person who

willfully

violates any provision of this law, or who

willfully

violates any rule or order under this law, shall upon conviction be fined not more than ten thousand dollars ($10,000) or imprisoned in the state prison for not more than 10 years or in a county jail for not more than one year, or be punished by both such fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he proves that he had no knowledge of the rule or order.” (Italics added.)