Criminal enforcement of Florida's securities laws.

In Florida, state law enforcement authorities have a variety of tools at their disposal to combat securities scams. These include F.S. Ch. 517, the "Florida Securities and Investor Protection Act," and other related statutes prohibiting theft, racketeering, organized schemes to defraud, and aggravated white collar crime. (1) Although the primary securities statutes have been on the books since the early 1930s, and securities prosecutions are regularly brought throughout Florida, many lawyers are unfamiliar with the law in this area.

In the wake of "Enron," "Martha Stewart," and various other high profile white collar scandals, law enforcement authorities have indicated a greater willingness to prosecute white collar crime of all varieties, including securities crimes. This article discusses the substantive law applicable in a Florida criminal securities prosecution, along with various practical issues that typically arise in these cases.

Definition of "Security" and the Role of Exemptions

All criminal securities prosecutions depend upon the existence of a "security," as defined by statute and case law. The definition of "security" in F.S. [section] 517.021 is quite broad. A "security" may include the obvious--traditional stocks and bonds--as well as less obvious instruments, such as "notes" or "investment contracts." (2) The breadth of the definition of "security" may come as a surprise to many practitioners. Even something as basic as a promissory note can, under the right circumstances, satisfy the statutory definition of "security." (3)

In Florida, the statutory definition of "security" found in F.S. [section] 517.021 is not the only source of authority on this issue. Courts "look beyond Ch. 517 to a broader definition of a security as found in case law." (4) When venturing beyond the confines of Ch. 517, Florida courts utilize the so-called "Howey test." (5) This test comes from the U.S. Supreme Court's opinion in Securities & Exchange Commission v. W.J. Howey Co., 328 U.S. 293 (1946). In Howey, the Court identified the following factors to determine whether a particular investment is a security: 1) an investment of money, 2) in a common enterprise, and 3) an expectation of profits to be derived solely from the efforts of another. (6)

When the state alleges that a securities crime has been committed, it has the burden of proving that the statutory definition of "security" has been satisfied. The state is not entitled to a pretrial determination, or a jury instruction, that a particular instrument meets the statutory definition of "security." (7) Even when there can be no genuine dispute that a particular instrument meets the statutory definition of "security," the defendant is entitled to have this issue decided by a jury. (8)

In some cases, the issue whether the statutory definition of "security" can be proven by the state is hotly contested. In these cases, the definition of "security" is the paramount issue for trial, and both sides may call expert witnesses, present detailed and lengthy documentary evidence, and make highly technical legal arguments in support of their respective positions. Sometimes the application of technical exemptions becomes an important part of the trial. When the definition of "security" is the focus of the case, a criminal securities trial may end up being more like a civil trial than a typical criminal trial.

On the other hand, the fact that the defendant uti lized a "security" as defined by F.S. [section] 517.021 may not be seriously disputed in many cases. In some instances, the case may have made its way to criminal enforcement authorities as a result of a concurrent administrative investigation by the Department of Financial Services, Office of Financial Regulation (formerly the Department of Banking and Finance). (9) In these cases, the administrative investigators have usually analyzed the issues and concluded that the definition of "security" is satisfied.

In a well-planned securities prosecution, the state will obtain an opinion from an expert on this critical question prior to filing criminal charges. Florida case law specifically allows the state to call an expert witness in a securities prosecution to assist the jury in understanding the statutory definition of "security." (10) An expert may also be called upon to provide testimony dealing with the applicability of exemptions and the materiality of certain statements or omissions. Expert testimony on behalf of the state may not be precluded on the grounds that it includes an ultimate issue to be decided by the trier of fact. (11)

Because the statutory definition of "security" is so broad, this area of Florida law provides a significant trap for unwary lawyers--especially those practicing in transactional fields. Lawyers need to be careful when asked by a client to draft documents that could be used by the client to obtain money from investors. Lawyers asked to draft documents that could satisfy the broad statutory definition of "security" should advise their client to seek the advice of a competent securities law specialist. If an accurate analysis of the securities law issues does not take place, the lawyer could unwittingly draft a document that is later used as a basis for the client's criminal prosecution. Needless to say, this kind of legal work does not make for happy clients. (22)

The Florida Securities and Investor Protection Act includes a complicated and technical series of exemptions. (13) In certain fact-specific circumstances, securities do not have to be registered, and persons selling securities do not have to have a license. Thus, even when the state is able to prove that the defendant utilized a "security," liability for some securities crimes can be still avoided if the defendant is able to prove the applicability of one of the statutory exemptions. If exemptions are part of a securities case, experts may become necessary on both sides.

The statutory exemptions may provide fertile ground for a defendant to create reasonable doubt in the minds of jurors when the state charges a violation of F.S. [section] 517.07 (registration of securities) or F.S. [section] 517.12 (registration of securities dealers). The exemptions do not, however, allow a defendant to avoid criminal responsibility for securities fraud. (14)

The existence of a statutory exemption is an affirmative defense that the defendant must prove. (15) Put differently, the state does not have to prove the absence of an exemption as part of its case.

Statutes Typically Involved in Securities Prosecutions Where a "security" as defined by F.S. [section] 517.021 is arguably present, enforcement authorities may be able to bring charges under a number of separate statutes. The sections that follow will discuss some of those statutes in detail.

* Selling Unregistered Securities--F.S. [section] 517.07

The sale of unregistered securities is perhaps the most basic of all securities offenses. Pursuant to F.S. [section] 517.07, many securities must be registered with the appropriate arm of the Department of Financial Services. No security may be sold, or offered for sale, unless it is exempt under F.S. [section] 517.051; or is sold in a transaction exempt under F.S. [section] 517.061; or is a federally covered security; or is registered pursuant to the terms of Ch. 517. (16)

Section 517.07 does not specifically include criminal penalties. Criminal sanctions for violation of F.S. [section] 517.07 are set forth in [section] 517.302, which provides that any violation of any part of Ch. 517 is a third degree felony, punishable by up to five years in prison. (17)

There are only two elements to this crime: a "sale" or an "offer to sell," and an unregistered security. (18) In this context, the terms "sale" and "sell" are defined in F.S. [section] 517.021(19) as follows:

"Sale" or "sell" means any contract of sale or disposition of any investment, security, or interest in a security, for value. With respect to a security or interest in a security, the term defined in this subsection does not include preliminary negotiations or agreements between an issuer or any person on whose behalf an offering is to be made and any underwriter or among underwriters who are or are to be in privity of contract with an issuer. Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing shall be conclusively presumed to constitute a part of the subject of such purchase and to have been offered and sold for value. Every sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert into another security or another issuer, is considered to include an offer of the other security.

"Offer to sell," "offer for sale," or "offer" means any attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, or an investment or interest in an investment, for value. F.S. [section] 517.021(15).

Violation of F.S. [section] 517.07 is a strict liability offense. (19) To obtain a conviction, the state only needs to prove that the defendant sold, or offered to sell, an unregistered security; intent is not an element of the crime. Neither ignorance of the registration requirement nor the defendant's good-faith reliance on the advice of counsel is a recognized defense. (20)

In comparative terms, this is a relatively minor crime that would almost never result in a jail or prison sentence for a single offense. However, it should be noted that a separate violation of F.S. [section] 517.07 occurs every time a defendant sells an unregistered security. A defendant who sells three separate unregistered securities to the same victim, on three different occasions, would be guilty of three separate violations of [section] 517.07. A defendant who sells three separate unregistered securities to three different victims would be guilty of three separate violations of [section] 517.07. As a practical matter, most people who sell unregistered securities do not usually sell just one unregistered security to one victim. It is fairly rare to find a defendant who is charged with committing just one violation of [section] 517.07.

* Selling Securities Without a License--FS. [section] 517.12

No "dealer, associated person, or issuer" may sell, or offer for sale, securities unless they are registered with the appropriate arm of the Department of Financial Services. (21) The terms "dealer, associated person, or issuer" are defined broadly and include almost anyone who might endeavor to sell securities. (22) While the focus of F.S. [section] 517.07 is on the document, that is, the security that is being sold, the focus of [section] 517.12 is on the credentials of the person selling the security.

There is no criminal penalty provided within F.S. [section] 517.12 itself. Instead, the source of the criminal penalty is [section] 517.302. Violation of [section] 517.302 is a third degree felony, punishable by up to five years in prison. (23) A separate violation of [section] 517.12 occurs every time the defendant sells a security without the proper license. Thus, a defendant who sells a security to eight different victims would commit eight separate violations of [section] 517.12.

Section 517.12 is also a strict liability offense. To obtain a conviction, the state needs to prove only that the defendant sold a security without the proper credentials--intent is not an element of the crime. Thus, a person selling even the most legitimate, registered, "blue chip" investment may violate [section] 517.12 if he or she sells that investment without the proper license. Neither ignorance of the license requirement nor the defendant's good faith reliance on the advice of counsel is a recognized defense. (24)

* Securities Fraud--F.S. [section] 517. 301 If a defendant makes an untrue statement of a material fact, or omits a material fact in connection with a sale of a security, he or she may have committed securities fraud in violation of F.S. [section] 517.301. This is the kind of crime that usually comes to mind when most people think about criminal securities prosecutions.

Section 517.301(1), which prohibits securities fraud, provides that it is unlawful for a person:

(a) In connection with the rendering of any investment advice or in connection with the offer, sale, or purchase of any investment or security, including any security exempted under the provisions of s. 517.051 and including any security sold in a transaction exempted under the provisions of s. 517.061, directly or indirectly:

1. To employ any device, scheme, or artifice to defraud;

2. To obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

3. To engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon a person.

This statute codifies traditional notions of securities fraud and, along with similar federal law, is the basis for much modern criminal and civil securities fraud litigation.

The focus of F.S. [section] 517.301 is on the statements, or material omissions, made by the person selling the security. In many instances, the issue for trial will be whether the defendant actually made the statement that the state alleges. In other cases, the defendant will admit making the statement, but the issue for trial will be whether the statement was untrue. In another kind of case, there may be conclusive documentary proof that the defendant made untrue statements of fact, but the issue for trial comes down to the materiality of the untrue statements.

The weight of existing authority suggests that securities fraud is a strict liability offense, but this issue has not been squarely addressed by any Florida court in a published decision. Florida law is clear that:

It is within the power of the legislature to declare conduct criminal without requiring specific criminal intent to achieve a certain result; that is, the legislature may punish conduct without regard to the mental attitude of the offender, so that the general intent of the accused to do the act is deemed to give rise to a presumption of intent to achieve the criminal result. The legislature may also dispense with a requirement that the actor be aware of the facts making his conduct criminal. (25)

With regard to securities fraud, State v. Houghtaling, 181 So. 2d 636 (Fla. 1965), can be read to support the proposition that the legislature did just what is described in the above-quoted passage when it revised the predecessor to the current statute in 1935. (26) Thus, securities fraud is arguably a strict liability offense in Florida.

Alternatively, it seems somewhat anomalous for a defendant to be convicted of criminal fraud where he or she truly may have had absolutely no intent to deceive whatsoever. Strict criminal liability for securities fraud would be particularly troubling if the basis of the criminal charge were a negligent misrepresentation or an omission. (27)

Section [section] 517.301 does not include criminal penalties but, as noted above, [section] 517.302 criminalizes any violation of Ch. 517 as a third degree felony, punishable by up to five years in prison. Furthermore, when there are five or more victims, and the aggregate amount of damages exceeds $50,000, securities fraud can be a first degree felony, punishable by up to 30 years in prison. (28)

Securities fraud can exist even when F.S. [section] 517.07 (registration of securities) or [section] 517.12 (registration of securities dealers) are not violated. A defendant who holds a valid securities license and sells a legitimate, registered security can nonetheless be guilty of securities fraud if, for example, he or she makes a material misrepresentation in order to persuade someone to purchase the security. Nonetheless, in many instances defendants are charged with violating all three of the securities statutes previously mentioned (F.S. [subsection] 517.07,517.12, and 517.301). In many situations, at least three crimes are committed each time a defendant sells a security to a victim.

Securities scares frequently involve an element of trust between the victims and the defendant that is established over time and through repeat dealings. Time, together with repeat dealings, may provide a factual basis for very significant charges. For example, an unscrupulous "investment advisor" might "guarantee" a victim a 12-percent rate of return in three months on a $1,000 promissory note. After three months, the unscrupulous "investment advisor" actually delivers what was promised, often times through a simple Ponzi operation. (29) The "investment advisor" then suggests that the victim "reinvest," or "roll over," the 12-percent profit into a second promissory note. If the victim agrees, the unscrupulous "investment advisor" may provide a second promissory note and may even deliver the promised investment return a second time.

In this manner a victim may choose to "roll over" his or her initial investment every few months over the course of many years thinking the investment is constantly increasing in value. By consistently appearing to deliver the promised returns through a Ponzi scheme, the unscrupulous "investment advisor" is able to convince the victims to invest larger amounts of money and to recommend the investment "services" to others.

A course of repeat dealing over a period of years presents a potential charging bonanza for a prosecutor in a securities case. In the example outlined above, the defendant may have committed a violation of F.S. [section] 517.07 (registration of securities), a violation of [section] 517.12 (registration of securities dealers), and a violation of F.S. [section] 517.301 (securities fraud) each and every time a new "rollover" promissory note was provided to a victim. If, for example, the defendant provided a new "rollover" promissory note to one victim every three months, over a two-year period the defendant could face at least a 24-count information (three charges for each of the eight separate "rollover" securities that was provided to the victim). If the defendant used this same strategy with respect to multiple victims, the number of criminal charges could grow exponentially.

As the above example illustrates, securities cases can result in significant charges, even when additional crimes, such as theft, racketeering, and the like are not charged. To make things worse, a number of the charges will likely involve strict liability offenses.

The scope of criminal charges is, of course, restricted by the applicable statutes of limitation. These statutes of limitation, which provide for a five-year limitations period, are found in F.S. [subsection] 517.302(4) and 775.15(2)(e). This five-year period stands in contrast to the two-year statute of limitations applicable to civil actions for securities fraud. (30)

* Theft--F.S. [section] 812.014

Many investment scares also involve facts that could give rise to criminal liability pursuant to Florida's omnibus theft statute, F.S. [section] 812.014. The focus of the theft charge is the money or other property obtained from the victim in exchange for the security. In most securities scares, the defendant obtains money from the victim in exchange for an "investment" of some kind, but then misappropriates the victim's money for his or her own purposes.

Charging theft in a securities case may seem appealing to a prosecutor at first blush, but it is not always an easy charge to prove and presents double jeopardy issues if securities fraud is also charged.

Intent is often a serious hurdle for the state in a securities prosecution where theft is charged. The state cannot prevail on a theft charge merely by proving that the defendant obtained money from a victim by some sort of false pretense. As most criminal lawyers are keenly aware, in a theft case the state must prove, among other things, that the defendant intended to deprive the victim of his or her property at the time of the taking. (31)

If a defendant uses a victim's money to engage in even a small amount of legitimate business activity, it can be especially difficult for prosecutors to prove intent at the time of the taking. It is not uncommon for defendants to use a small amount of their investors' money at the beginning of the scheme to further "legitimate" investment objectives, but then keep a substantial portion of the investors' money for their own personal purposes. For example, in a scheme involving an alleged new business venture, a defendant may use some of the investors' money to rent office space for the infant business venture, and even begin developing a product of some kind, while at the same time paying himself or herself a very high "salary" for the work. If prosecuted, the defendant would likely argue that he or she may be a poor businessperson, but not a criminal; otherwise, why would he or she have rented office space and produced goods or services? As this example shows, when the defendant initially uses a small amount of investor funds for arguably legitimate business purposes, it can be a challenge for the state to prove intent at the time of the taking.

That is not to say, however, that the state can never prove intent at the time of the taking when there is some small amount of "legitimate business activity." Intent is a jury question; so the facts matter tremendously. This is where a detailed analysis of the defendant's financial dealings becomes critical for both sides. When, for example, analysis of the defendant's financial activities shows that the defendant used a very large portion of investor monies for personal purposes, such as the purchase of a new home, a boat, or a car, or something of that nature, a jury could be convinced that the defendant intended to deprive the victims of their monies at the time of the taking despite the presence of a small amount of "legitimate business activity."

It should be noted, however, that double jeopardy concerns are presented when securities fraud is charged along with theft. Securities fraud (F.S. [section] 517.301), and theft (F.S. [section] 812.014), involve different elements. Typically, pursuant to the familiar Blockburger analysis, the presence of different elements means that double jeopardy is not present. (32) Florida courts, however, have held that "[t] he legislature did not intend for a single act of criminal fraud involving the core offense of theft to be prosecuted as separate offenses under both a specific fraud statute and the grand theft statute." (33) Thus, double jeopardy precludes the state from convicting a person of both theft and filing a false insurance claim (F.S. [section] 817.234(1)(a)) (34) or theft and burning with intent to defraud (F.S. [section] 817.233), despite the fact that these crimes have different elements. (35) Based on these published decisions, it is logical, then, to suspect that double jeopardy precludes convictions for both theft and securities fraud. That having been said, no published Florida decision so holds. Therefore, this is likely an open question.

* Racketeering--F.S. [section] 895.03 Many securities scams make excellent candidates for racketeering ("RICO") charges. (36) If the state brings RICO charges in connection with a securities prosecution, the stakes are raised considerably--a defendant can face the possibility of significant prison time for a first offense. RICO is a first degree felony and presently a level eight offense punishable by at least 34 1/2 months in prison for a first offense. A lawyer representing a client charged with RICO--violation of F.S. [section] 895.03--must become familiar with the various intricacies of this offense, and there are a variety of references available. (37) A comprehensive discussion of RICO is beyond the scope of this article, but a few of the RICO issues that commonly arise in securities prosecutions merit further elaboration.

The first point to note is that the securities offenses discussed above can serve as RICO predicates, as can theft. (38) Accordingly, the sale of unregistered securities to just a few victims by a person without the proper license could easily generate several RICO predicate offenses.

However, RICO includes a so-called "continuity requirement." Case law holds that a RICO offense is not committed by an isolated, "one-time only" criminal episode, even if numerous predicate acts arise from that "one-time only" criminal episode. (39) Thus, a "one-time only" sale of unregistered securities to a victim, by a person without the proper license, through fraud, could not give rise to RICO liability even though three predicate acts could be established--violation of F.S. [section] 517.07 (registration of securities), F.S. [section] 517.12 (registration of securities dealers), and F.S. [section] 517.301 (securities fraud). "[U]nlike cases brought under the federal act, crimes committed at the same time cannot qualify as separate incidents for purposes of proving racketeering conduct under the Florida act." (40) The continuity requirement should be carefully considered in every case because it is an issue that lends itself to a case-by-case determination.

RICO also includes an "enterprise" element. (41)

An individual defendant cannot constitute the "enterprise" for RICO purposes. That is, a defendant cannot commit a RICO offense by participating with an enterprise consisting of only the defendant. In order to satisfy the "enterprise" element of a RICO charge, the state must allege the defendant acted in concert with another person, organization or entity. (42)

Thus, in factual scenarios involving a single defendant, the "enterprise" element can sometimes be difficult for prosecutors to establish.

Nonetheless, in many criminal securities cases, single defendants form corporations, or establish other business entities such as limited partnerships and the like. The establishment of a valid business entity assists the defendant in presenting an aura of legitimacy to potential investors. Unfortunately for the defendant, this also assists the state in being able to establish the "enterprise" element. When a single defendant forms or uses a corporation, or other business entity in connection with his or her criminal activity, the "enterprise" element can be satisfied. (43) This is true even when the defendant owns 100 percent of the shares of the corporation. A single defendant can commit a RICO offense by participating with an "enterprise" consisting of the defendant and his or her wholly owned corporation or other business entity.

Unlike some of the securities offenses previously mentioned, it is clear that RICO is not a strict liability offense. (44) This is true even if all of the alleged RICO predicate acts are strict liability securities crimes--the state must still prove intent.

* Aggravated White Collar Crime--F.S. [section] 775.0844

In 2001, the Florida Legislature created a new crime known as "aggravated white collar crime." (45) "Aggravated white collar crime" is defined in F.S. [section] 775.0844(4):

As used in this section, "aggravated white collar crime" means engaging in at least two white collar crimes that have the same or similar intents, results, accomplices, victims, or methods of commission, or that are otherwise interrelated by distinguishing characteristics and are not isolated incidents, provided that at least one of such crimes occurred after the effective date of this act.

The type of conduct that may qualify as "white collar crime" is defined broadly in F.S. [section] 775.0844(3) and includes, inter alia: Violations of chapter 812;

A felony offense that is committed with intent to defraud or that involves a conspiracy to defraud;

A felony offense that is committed with intent to temporarily or permanently deprive a person of his or her property or that involves a conspiracy to temporarily or permanently deprive a person of his or her property;

A felony offense that involves or results in the commission of fraud or deceit upon a person or that involves a conspiracy to commit fraud or deceit upon a person. (46)

A large scale securities case involving fraud seems to fit perfectly within the definition of aggravated white collar crime.

However, for this statute to apply the defendant must have obtained or attempted to obtain a total of $50,000 or more. (47) And, there must be either: 1) 10 or more elderly victims; 2) 20 non-elderly victims (either individuals or businesses); or 3) the victim is the state of Florida, any state agency, any of the state's political subdivisions, or any agency of the state's political subdivisions. (48)

A conviction for aggravated white collar crime can bring severe penalties. It is a first degree felony and presently a level nine offense punishable by at least 48 months in prison for a first offense. (49) "In addition to a sentence otherwise authorized by law, a person convicted of an aggravated white collar crime may be required to pay a fine of $500,000, or double the value of the pecuniary gain or loss, whichever is greater." (50)

For a variety of reasons, aggravated white collar crime may turn out to be the "weapon of choice" for prosecutors battling large scale, multivictim securities cases. While it is too soon to tell, aggravated white collar crime may be considerably more "user friendly" for prosecutors than other charges traditionally brought in these cases such as RICO or organized scheme to defraud). (51) The legal concepts involved with the aggravated white collar crime charge are fairly straightforward, and the penalties are comparatively severe. For example, aggravated white collar crime is a level nine offense, while RICO is only a level eight offense, and an organized scheme to defraud is only a level six offense.

Currently, there are no published opinions interpreting the "White Collar Crime Victim Protection Act." Only after several years of appellate decisions will the full reach of this statute become clear. In the meantime, it will certainly be a tool that prosecutors should be expected to use in large-scale, multivictim securities cases.

Conclusion

Securities prosecutions brought pursuant to the "Florida Securities and Investor Protection Act" present a host of issues that may be unfamiliar to many criminal lawyers. Likewise, the criminal enforcement mechanism itself presents an equally unfamiliar landscape to most civil lawyers, even those who litigate in the securities field. This difficulty can be exacerbated when a client is being investigated simultaneously by civil and criminal authorities in so-called "parallel proceedings," or when private civil litigation leads to the institution of a criminal case.

But like all things in law, preparation is the key. Securities prosecutions may take a bit more time than a typical criminal case for everyone concerned--prosecutor, defense counsel, and the court. But there is nothing in this area of law that cannot be easily mastered with a little time and preparation.

(1) FLA. SWAT. [section] 812.014 (theft); FLA. SWAT. [section] 895.03 (racketeering); FLA. SWAT. [section] 817.034 (organized scheme to defraud); FLA. SWAT. [section] 775.0844 (aggravated white collar crime).

(2) See FLA. SWAT. [section] 517.021(20)(a) (defining security to include a "note") and FLA. SWAT. [section] 517.021(19)(q) (defining security to include an "investment contract").

(3) Although FLA. STAT. [section] 517.021(20)(a) indicates that "notes" meet the statutory definition of "security," case law holds that some kinds of promissory notes satisfy the definition of "security" and some do not. There is a distinction made between notes that are given for the purpose of investing and those that merely memorialize and secure a simple loan. For example, in State v. Fried, 357 So. 2d 211, 212 (Fla. 3d D.C.A. 1978), the Third District affirmed a trial court's holding that "[t]he borrowing of money in a single transaction between a borrower and a lender, with the giving of a promissory note to evidence the indebtedness, does not constitute the sale of a security." In Reves v. Ernst & Young, 494 U.S. 56 (1990), the U.S. Supreme Court outlined a detailed method for determining whether certain promissory notes satisfy the definition of "security" for purposes of federal securities law.

(4) Greater Ministries International, Inc. v. State, 689 So. 2d 328,329-30 (Fla. 2d D.C.A. 1997).

(5) Id. at 330; Farag v. National Databank Subscriptions, Inc., 448 So. 2d 1098, 1100 (Fla. 2d D.C.A. 1984); Adams v. State, 443 So. 2d 1003, 1005 (Fla. 2d D.C.A. 1983), review denied, 449 So. 2d 265 (Fla.1984).

(6) Howey, 328 U.S. at 298-99.

(7) Miller v. State, 285 So. 2d 41, 42 (Fla. 2d D.C.A. 1973).

(8) Id. While the state cannot have a court determine that a particular instrument meets the statutory definition of "security" as a matter of law, this rule does not preclude a defendant from successfully having a court determine that a particular instrument does not meet the statutory definition of "security" as a matter of law through the vehicle of a motion to dismiss the information. See State v. Fried, 357 So. 2d 211 (Fla. 3d D.C.A. 1978).

(9) Most Florida securities case law refers to the Department of Banking and Finance instead of the Department of Financial Services. For purposes of this article, the Department of Banking and Finance and the Department of Financial Services are essentially one and the same. The name change is due, in part, to a reorganization of various governmental responsibilities that became effective in January 2003 as a result of the 1998 constitutional amendment combining the offices of the state treasurer and the comptroller. See www.dbf.state.fl.us.

(10) Bookhardt v. State, 710 So. 2d 700, 701 (Fla. 5th D.C.A. 1998).

(11) Id.

(12) The fact that the "security" is drafted by a lawyer is not, technically, a defense to some securities crimes. See supra note 20 and accompanying discussion in text.

(13) See FLA. STAT. [subsection] 517.051 (exempt securities) and 517.061 (exempt transactions).

(14) FLA. SWAT. [section]517.301(1)(a).

(15) FLA. SWAT. [section]517.171 provides in relevant part that "the burden of establishing the right to any exemption shall be upon the party claiming the benefit of such exemption." Lest there be any doubt about the respective burdens of proof regarding exemptions, in State v. Buchman, 361 So. 2d 692, 694 (Fla. 1978), the Florida Supreme Court observed that "it is lawful and mandatory that a prosecutor be free from the burden of proving that the securities or the transaction is

not exempt. If held to such a burden, the prosecutor's task would be close to impossible."

(16) FLA. SWAT. [section]517.07; Greater Ministries, 689 So. 2d at 329. It should be noted that the federal securities laws were amended in 1996 to, inter alia, preempt the ability of states to require the registration of certain "covered securities." See 15 U.S.C. [section]77r. Thus, to the extent state law purports to require the registration of a "covered security" with the appropriate arm of the Department of Financial Services, that law should be preempted by the applicable federal law. See Temple v. Gorman, 201 F. Supp. 2d 1238, 1242 (S.D. Fla. 2002).

(17) Violation of FLA. SWAT. [section]517.07 is presently scored as a level two offense. See FLA. SWAT. [section]921.0022 (3)(b). The offense severity ranking chart found in [section]921.0022 is confusing and inconsistent as it relates to securities crimes. As noted in the text, the statute criminalizing violations of Ch. 517 is [section]517.302. The offense severity ranking chart indicates that violations of [section]517.302 are level one offenses. However, the offense severity ranking chart has a specific entry referring to [section]517.07 which indicates that violation of [section]517.07 is a level two offense.

(18) There are no Florida standard jury instructions for any of the securities crimes discussed herein.

(19) State v. Houghtaling, 181 So. 2d 636, 638 (Fla. 1965); see also Santacroce v. State, 608 So. 2d 134, 137 (Fla. 4th D.C.A. 1992) (civil enforcement).

(20) Huff v. State, 646 So. 2d 742 (Fla. 2d D.C.A. 1994) (holding that trial court properly precluded advice of counsel defense as to charges based on FLA. SWAT. [sub section]517.07 and 517.12); see also Santacroce v. State, 608 So. 2d 134 (Fla. 4th D.C.A. 1992) (civil enforcement).

(21) Greater Ministries, 689 So. 2d at 329. Note that the actual opinion uses the term "Department of Banking and Finance," not "Department of Financial Services." Department of Banking and Finance is no longer the correct name for the appropriate agency. See supra note 15.

(22) The definitions of "dealer," "associated person," and "issuer" are found in FLA. SWAT. [section]517.021.

(23) Violation of FLA. SWAT. [section]517.302 is presently scored as a level one offense. See FLA. SWAT. [section]921.0022(3).

(24) See supra note 20.

(25) State v. Gray, 435 So. 2d 816, 819 (Fla. 1983); State v. Oxx, 417 So. 2d 287, 288-89 (Fla. 5th D.C.A. 1982) (listing the various strict liability offenses created by the legislature).

(26) Technically, Houghtaling, 181 So. 2d, dealt only with FLA. SWAT. [sub section]517.07, and 517.12, not with [section]517.301. But there is nothing to suggest that the court's analysis would have been any different had it been called upon to address [section]517.301.

(27) Huff v. State, 646 So. 2d 742 (Fla. 2d D.C.A. 1994), provides support for the argument that securities fraud is not a strict liability offense. Huff affirmed the trial court's refusal to allow an advice of counsel defense relating to the counts predicated upon FLA. SWAT. [sub section]517.07 and 517.12, because these charges constituted strict liability offenses. However, the Huff court indicated that the trial court erred in not allowing an advice of counsel defense relating to the counts for conspiracy to commit RICO, organized scheme to defraud, first-degree grand theft, grand theft, and securities fraud because each of those charges did not constitute a strict liability offense. Furthermore, an attempt to impose strict liability for omissions may also present a due process problem. See Lambert v. California, 355 U.S. 225 (1957) (criminal liability cannot be imposed for failing to act when the state has made no showing that the defendant knew that he or she had a duty to act).

(28) See FLA. SWAT. [sub section]517.302(2) and 517.312.

(29) A Ponzi scheme is a classic investment swindle in which early investors are paid off with money put up by later ones in order to encourage more and bigger risks.

(30) See FLA. SWAT. [section]95.11(4)(e).

(31) Sewall v. State, 783 So. 2d 1171, 1176 (Fla. 5th D.C.A. 2001) ("In order to sustain a conviction for grand theft, the State must show that the defendant had the specific intent to commit the theft at the time of or prior to the commission of the act of taking."); Rosen v. Marlin, 486 So. 2d 623, 625 (Fla. 3d D.C.A. 1986) (to sustain a conviction for grand theft, the state must show that the defendant had the specific intent to commit the theft at the time of or prior to the commission of the act of taking).

(32) Blockburger v. United States, 284 U.S. 299, 304 (1932). The Florida Legislature has codified the Blockburger analysis in FLA. SWAT. [section]775.021(4).

(33) Watson v. State, 655 So. 2d 1250, 1251 (Fla. 1st D.C.A. 1995) (double jeopardy precludes conviction for theft where the defendant is also charged with filing a false insurance claim (FLA. SWAT. [section]817.234(1)(a)) and burning with intent to defraud (FLA. SWAT. [section]817.233))

(34) Hayes v. State, 844 So. 2d 705 (Fla. 2d D.C.A. 2003); LaRoche v. State, 761 So. 2d 335, 336 (Fla. 4th D.C.A. 1998).

(35) Watson, 655 So. 2d 1250 (Fla. 1st D.C.A. 1995).

(36) See, e.g., Esskuchen v. State, 756 So. 2d 156 (Fla. 5th D.C.A. 2000) (defendant was convicted of racketeering, multiple counts of securities fraud, multiple counts of sale of unregistered securities, multiple counts of sale of securities by an unregistered agent, and organized fraud of over $50,000).

(37) See, e.g., JED RAKOFF AND HOWARD GOLDSTEIN, RICO CIVIL AND CRIMINAL LAW AND STRATEGY (Law Journal Press 2003); U.S. Department of Justice, Criminal Resource Manual, [sub section] 109 and 110 (available on the DOJ's Web site, www.usdoj.gov); Karen Walker and Michael Tanner, RICO Claims: The Challenge of Alleging the 'Pattern' Element, 76 FLA. B.J. 34 (May 2002).

(38) See FLA. SWAT. [section]895.02(1)(a)(7).

(39) Lugo v. State, 845 So. 2d 74, 99 (Fla. 2003); State v. Lucas, 600 So. 2d 1093, 1094 (Fla. 1992); Bowden v. State, 402 So. 2d 1173, 1174 (Fla. 1981).

(40) State v. Lucas, 600 So. 2d at 1095-96 (Fla. 1992); State v. Russo, 493 So. 2d 504 (Fla. 4th D.C.A. 1986), review denied, 504 So. 2d 768 (Fla. 1987).

(41) Gross v. State, 765 So. 2d 39, 45 (Fla. 2000) ("in order to prove an enterprise, the State need only establish two elements: (1) an ongoing organization, formal or informal, with a common purpose of engaging in a course of conduct, which (2) functions as a continuing unit.")

(42) State v. Jackson, 677 So. 2d 938, 941 (Fla. 2d D.C.A. 1996) (citations omitted).

(43) Id.; Masonoff v. State, 546 So. 2d 72 (Fla. 2d D.C.A.), rev. dismissed, 553 So. 2d 1166 (Fla. 1989).

(44) Bowden v. State, 402 So. 2d 1173, 1175 (Fla. 1981).

(45) See FLA. SWAT. [section]775.0844 (the "White Collar Crime Victim Protection Act").

(46) See FLA. SWAT. [section]775.0844(3)(a-d).

(47) FLA. SWAT. [section]775.0844(5).

(48) Id.

(49) FLA. SWAT. [sub section]775.0844(5) and 775.0844(6).

(50) FLA. SWAT. [section]775.0844(7).

(51) See FLA. SWAT. [section]817.034(4) (criminalizing the use of a "scheme to defraud" to obtain property).

Tom Barber is a county court judge in Hillsborough County. He previously practiced in the area of business litigation with Carlton Fields, P.A. in Tampa. He also served as a prosecutor with the state attorney's office in Tampa, and with the Office of Statewide Prosecution where he prosecuted multicircuit criminal matters including securities fraud. Judge Barber received his undergraduate degree from the University of Florida, Phi Beta Kappa, and his law degree from the University of Pennsylvania.