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Court Rules Lot Sales Were Sales Of Securities

After a five week trial, a San Diego jury convicted Ronald Duane Dunham of multiple crimes, including seven counts of securities fraud.  He was sentenced to 12 years in prison.  After unsuccessfully appealing his conviction to the California Court of Appeal (People v. Dunham, People v. Dunham, 2018 Cal. App. Unpub. LEXIS 874), Dunham filed a petition for writ of habeas corpus in federal court.  Among other things, Dunham argued that his sale of lots in a real estate development were not securities under the California Corporate Securities Law of 1968.

Last week, U.S. District Court Judge Gonzalo P. Curiel denied Dunham's petition.   Citing SEC v. Schooler, 905 F.3d 1107 (9th Circ. 2018), Judge Curiel reasoned that a reasonable jury could have concluded that lots sold by Dunham were not independent real estate transactions but the sale of securities:

"Dunham argues there was insufficient evidence for the jury to conclude the Cherokee Village lot purchases were securities because the expected profits from the investment were not 'derived from the managerial efforts of others.' . . .  He contends they were simply purchases of individual lots by individual investors.  As discussed in section IV(C)(4)(b)(i) above, all of the victims testified they were told they were purchasing lots or interests in GCREF in order to be part of and profit from a future retirement development, that Dunham would oversee the development, and that Dunham had the experience to make the development a success and that the lots would increase in value over time as the project took shape.  . . .  None of the victims, with the possible exception of Jay and Marilyne A. who testified they considered using one of the lots they owned for a retirement home, planned to develop their lots themselves.  . . .  The evidence also established Dunham himself thought of the lot purchases as 'common enterprise' that he was managing.  After the victims purchased the lots, Dunham held events at which plans for the development and a marketing campaign were described.  . . .

(Citations to the record omitted). 

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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