Under federal case law, investments in a pyramid scheme are “investment contracts” and
thus securities. (Webster, at p. 784.) It is well established that “federal cases construing
federal securities laws are persuasive authority when interpreting our state securities
law.” (Viterbi v. Wasserman (2011) 191 Cal.App.4th 927, 939.) California courts have
also found evidence of memberships in endless chain schemes is sufficient to support
14
convictions under California’s securities law. (People v. Frederick, supra, 142
Cal.App.4th at pp. 413-414.)
Ultimately the determination about securities was a factual question for the jury to
decide. (People v. Frederick, supra, 142 Cal.App.4th at p. 413; People v. Smith, supra,
215 Cal.App.3d at p. 236.) The jury heard the testimony of Kirk Wallace, an
enforcement attorney with the Department of Corporations, that an endless chain or
pyramid scheme can be a security. Additionally, EZ2Win members testified that they
believed they were investors in EZ2Win. In particular, EZ2Win members were told the
“founders program” gave them an ownership interest in EZ2Win. Victims also joined
EZ2Win because they believed it was an alternative investment in Big Co-op, the parent
company which was about to go public. Defendants treated investments in Big Co-op
stock and EZ2Win memberships as interchangeable—accepting checks for stock
purchases written to “EZ2Win.”
Furthermore, the success of EZ2Win depended on Big Co-op and defendants’
management of both enterprises, not on the members’ efforts. (People v. Frederick,
supra, 142 Cal.App.4th at p. 414.) As already discussed, it was not significant that
members could earn money through their own efforts selling memberships or products.
(Id. at pp. 413-414; SEC v. Glenn W. Turner Enterprises, Inc. (9th Cir. 1973) 474 F.2d
476, 482.) The EZ2Win member’s most important role was to solicit new recruits. We
hold substantial evidence supports the jury’s finding that EZ2Win memberships were
securities because EZ2Win was an endless chain scheme.
15
V
SECTION 654
On each of the 20 sets of three companion counts (counts 1 through 60), the trial
court imposed sentence on the principal count and sentences on two additional counts to
be served concurrently or consecutively but stayed under section 654. Defendants claim
that the trial court erred by its oral pronouncement, and the corresponding minute order
was improper because it imposed concurrent or consecutive sentences on counts
involving the same acts and then stayed those sentences pursuant to section 654.
Defendants’ example of how the sentences should have been pronounced seems to be a
distinction without any real difference.
The procedure followed here is exactly what is contemplated in People v. Duff
(2010) 50 Cal.4th 787, 796: “[W]hen a court determines that a conviction falls within the
meaning of section 654, it is necessary to impose sentence but to stay the execution of the
duplicative sentence.” Duff only prohibits the imposition of concurrent sentences in
place of stays, as “the imposition of concurrent sentences is precluded by section 654 . . .
because [under such a sentence] the defendant is deemed to be subjected to the term of
both sentences although they are served simultaneously.” (Duff, at p. 796.) Accordingly,
the trial court’s oral pronouncement staying the sentences on the counts involving the
same acts fully complied with section 654 and the minute order should not be modified.
16
VI
FINES, FEES, AND RESTITUTION
The trial court imposed a $10,000 restitution fine under section 1202.4,
subdivision (b)(1), and then stayed the fine based on its finding that defendants had the
inability to pay. Respondent concedes it may have been improper to impose and then
stay a fine because inability to pay is not a ground for staying a restitution fine, but rather
only a factor a court can consider in setting the restitution fine in the first place.
We agree the proper remedy is to remand the issue to the trial court, not to modify
the restitution fine on appeal. Inability to pay is one of the factors in setting the amount
of the restitution fine. (§ 1202.4, subd. (d).) Other factors include: “the seriousness and
gravity of the offense and the circumstances of its commission, any economic gain
derived by the defendant as a result of the crime, the extent to which any other person
suffered losses as a result of the crime, and the number of victims involved in the crime.”
While defendants’ inability to pay might weigh against imposition of the statutory
maximum, other factors strongly weigh in favor of doing so. Remand to the trial court to
consider all the factors is the proper remedy.
Respondent also concedes that only one $10 fee may be imposed on each
defendant. (People v. Crittle (2007) 154 Cal.App.4th 368, 371.) On remand, the trial
court is directed to modify defendants’ respective section 1202.5 fines from $200 to $10.
Defendants also challenge the direct victim restitution award in the amount of
$8,266,026, arguing that its imposition without jury findings violated the Sixth
17
Amendment in light of the United States Supreme Court’s decision in Southern Union
Company v. United States (2012) ___U.S.___ [132 S.Ct. 2344, 183 L.Ed.2d 318].) Our
sister court in the Fourth District rejected this same contention in People v. Pangan
(2013) 213 Cal.App.4th 574, 584-585.) Section 1202.4 imposes victim restitution, not a
“criminal fine,” and therefore is not subject to the Apprendi4 rule.
Respondent does not oppose correcting the minute orders and abstracts of
judgment to reflect the trial court’s oral pronouncement that defendants be held jointly
and severally liable for the direct victim restitution it ordered in the amount of
$8,266,026. The typographical errors in the abstract of judgment should also be
corrected, replacing “fraud in the office” to “fraud in the offer” and changing the direct
victim restitution amount from “$48,266,026.00” to “$8,266,026.00.” Ryan’s abstract of
judgment also should be corrected as to the direct victim restitution amount.
VII
DISPOSITION
We affirm the judgment. In the interests of judicial economy, we remand to the
trial court for further proceedings to reconsider the amount of the restitution fee based on
4 Apprendi v. New Jersey (2000) 530 U.S. 466.
18
the relevant statutory factors and to make various corrections of the fines, fees, and
typographical errors as discussed above.
CODRINGTON J.
We concur:
KING Acting P. J.
MILLER J.
19
Filed 7/23/14
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION TWO
THE PEOPLE,
Plaintiff and Respondent, E056132
v.
JAMES ALBERT SWEENEY II et al., (Super.Ct.No. RIF150506)
Defendants and Appellants.
ORDER
IT IS ORDERED that the July 16, 2014, request for publication of the opinion
filed June 26, 2014, is GRANTED. The opinion meets the standard for publication as
specified in California Rules of Court, rule 8.1105(c).
CODRINGTON J.
KING Acting P. J.
1
AI Brief
AI-generated · verify before citing
Holding. The court held that the defendants' business operations constituted an illegal endless chain scheme and that the memberships sold were securities under California law. The court affirmed the convictions while remanding for limited corrections to sentencing fines, fees, and clerical errors.
Issues
Whether there was sufficient evidence to support the conviction for operating an endless chain scheme under Penal Code section 327.
Whether memberships in the defendants' business were securities under California law.
Whether the trial court's sentencing procedure complied with Penal Code section 654.
Whether the imposition of victim restitution without jury findings violated the Sixth Amendment.
Disposition. Affirmed and remanded with directions.
Quotations verified verbatim against the opinion
“EZ2Win indisputably was an endless chain.”
“We hold substantial evidence supports the jury’s finding that EZ2Win memberships were securities because EZ2Win was an endless chain scheme.”