v. Baker , 2019 COA 165 ( 2019 )

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
November 7, 2019
2019COA165
No. 16CA1545, People v. Baker — Crimes — Securities — Fraud
and Other Prohibited Conduct; Evidence — Opinions and
Expert Testimony — Testimony by Experts — Opinion on
Ultimate Issue
A division of the Colorado Court of Appeals holds that certain
expert testimony by the Deputy Commissioner for the Colorado
Division of Securities in this securities fraud case improperly
usurped the jury’s role. Specifically, the Deputy Commissioner
improperly told the jury what the defendant had and had not said,
and had and had not done, not in hypothetical terms but in terms
suggesting certainty based on credibility determinations and
assessment of evidence, some of which had not been presented to
the jury. The expert’s testimony further conveyed the impression
that she had determined that the defendant was guilty. Because
the erroneous admission of this testimony was not harmless, the
division reverses the defendant’s convictions for securities fraud
and theft.
COLORADO COURT OF APPEALS 2019COA165
Court of Appeals No. 16CA1545
Jefferson County District Court No. 14CR2062
Honorable Philip J. McNulty, Judge
The People of the State of Colorado,
Plaintiff-Appellee,
v.
Karl Christopher Baker,
Defendant-Appellant.
JUDGMENT AFFIRMED IN PART, REVERSED IN PART,
AND CASE REMANDED WITH DIRECTIONS
Division VII
Opinion by JUDGE J. JONES
Fox and Tow, JJ., concur
Announced November 7, 2019
Philip J. Weiser, Attorney General, Brittany L. Limes, Assistant Attorney
General, Denver, Colorado, for Plaintiff-Appellee
Megan A. Ring, Colorado State Public Defender, Rachel K. Mercer, Deputy State
Public Defender, Denver, Colorado, for Defendant-Appellant
¶1 Defendant, Karl Christopher Baker, appeals the judgment of
conviction entered on jury verdicts finding him guilty of three
counts of securities fraud (fraud in the sale of a security); three
counts of theft ($20,000 or more); and one count of filing a false tax
return. Because we conclude that the prosecution’s expert witness
on securities impermissibly testified to conclusions solely within the
jury’s province, we reverse Baker’s securities fraud and theft
convictions and remand for a new trial on those counts. We affirm
the conviction for filing a false tax return.
I. Background
¶2 Baker and his business partner formed Aviara Capital
Partners, LLC (Aviara), in late 2009, planning to buy a controlling
interest in a bank, purchase the bank’s distressed assets (mostly
loans secured by real estate), and then sell those assets at a profit
when the real estate market improved.
¶3 To fund this plan, Aviara needed investors. Baker sought out
potential investors, including four people named as victims in this
case: Donna and Lyal Taylor, Dr. Alan Ng, and Stanley Douglas.
According to the indictment, each chose to invest in Aviara after
Baker allegedly told them the following:
1
1. Their investments would go toward buying a distressed
bank.
2. “Class A” investors — larger, corporate investors — were
already lined up.
3. The amount of their investment that they could lose was
capped. (The Taylors alleged that Baker said they could
lose $30,000 at most. Douglas said that he was told he
could lose no more than 25% of his investment. Ng
understood that, in a worst case scenario, he wouldn’t
make a profit.)
4. Baker wouldn’t take a salary until Aviara was up and
running or profitable.
5. Aviara would hold their money in escrow.
6. They would get their principal back quickly (within a year
according to Ng and Douglas; within three to four months
according to the Taylors).
2
Donna Taylor also alleged that Baker told her his mother was going
to invest in Aviara. 1
¶4 After the People indicated that Lillian Alves, the Deputy
Commissioner for the Colorado Division of Securities, would testify
at trial, defense counsel filed a motion in limine to exclude her
testimony, arguing (among other things) that her proposed
testimony would usurp the jury’s role as fact finder, would include
determinations the jurors could make themselves, wouldn’t be
helpful, would misstate the law, and would serve “only to bolster
and re-state the charges, which of course are not evidence.” The
district court denied that motion.
¶5 At trial, each investor testified that Baker had told them that
larger investors were about to jump in, there would be a limit on
their potential losses, Baker wasn’t taking a salary, and Aviara
would hold their investments in escrow. The Taylors and Douglas
also testified that Baker told them that all, or at least some, of their
1Donna and Lyal Taylor testified that Baker also told them that his
mother was going to invest in Aviara. But Lyal later clarified on
cross-examination that he understood the statement as a
hypothetical — that Baker “would even let [his] own mother invest,”
not that she was actually going to do so.
3
investment would go directly toward purchasing the bank. And
both the Taylors and Ng testified that Baker told them they would
get their principal back quickly.
¶6 After the court qualified Alves as an expert in securities law,
she testified about the Colorado Securities Act and its registration
requirements, that securities law requires “full and fair disclosure,”
that Baker had an obligation to truthfully disclose material facts,
and that the shares of Aviara that Baker sold were securities. She
also testified at length about what statements or omissions Baker
had made to the investors, and whether those statements and
omissions were material. And she concluded that the things Baker
said would happen never occurred. Defense counsel repeatedly
objected to this testimony.
¶7 Baker didn’t testify, but defense counsel vigorously attacked
the investors’ credibility, arguing that the statements attributed to
Baker didn’t make any sense, particularly in light of the
comprehensive documents Baker had provided to the investors,
which didn’t include such statements.
¶8 A jury found Baker guilty of the charges noted above, but
acquitted him of one count of securities fraud.
4
II. Discussion
¶9 Baker contends that the district court erred by (1) allowing
Alves’s testimony; and (2) allowing the prosecution to present
evidence that he falsely told Donna Taylor that Aviara would
register the securities it was selling, when the indictment didn’t
contain any such allegation. He also contends that, in the event we
affirm, his theft conviction for taking $50,000 from Ng should be
reduced from a class 3 felony to a class 4 felony.
¶ 10 We agree with Baker that some of Alves’s testimony crossed
the line between permissible and impermissible expert testimony.
Because the court’s error in allowing the impermissible testimony
wasn’t harmless, we reverse Baker’s securities fraud and theft
convictions. But we conclude that Alves’s improper testimony
didn’t taint the conviction for filing a false tax return. Given the
possibility that the issue may arise in the event of a new trial, we
also briefly address Baker’s contention that evidence that he told
Donna Taylor he would register the securities impermissibly varied
from the charges in the indictment.
5
A. Alves’s Expert Testimony
¶ 11 Baker challenges Alves’s expert testimony on eight related and
largely overlapping grounds, including that her testimony wasn’t
helpful, was speculative, misstated the law, and usurped the
functions of the judge and jury. We agree with Baker that parts of
Alves’s testimony usurped the jury’s role.
1. Standard of Review
¶ 12 A trial court has broad discretion to determine the
admissibility of expert testimony, and we won’t overturn its rulings
allowing such testimony absent a showing of an abuse of that
discretion. People v. Pahl, 169 P.3d 169, 182 (Colo. App. 2006). A
trial court abuses its discretion if its decision is manifestly
arbitrary, unreasonable, or unfair, or if it misapprehends or
misapplies the law. People v. Thompson, 2017 COA 56, ¶ 91.
¶ 13 Baker preserved his argument that Alves’s testimony usurped
the function of the jury. Because this argument is preserved, we
will determine whether any error requires reversal by applying the
harmless error test. Hagos v. People, 2012 CO 63, ¶ 12. Under
that test, we reverse only if the error “substantially influenced the
verdict or affected the fairness of the trial proceedings.” Id. (quoting
6
Tevlin v. People, 715 P.2d 338, 342 (Colo. 1986)). To determine if
that occurred, we look to whether the People have shown that there
is “no reasonable possibility that [the error] contributed to the
defendant’s conviction.” Pernell v. People, 2018 CO 13, ¶ 22; see
James v. People, 2018 CO 72, ¶¶ 18-19 (the prosecution must show
that any error was harmless). But see People v. Rock, 2017 CO 84,
¶ 22 (articulating the harmless error test as whether “there is a
reasonably probability that it contributed to the defendant’s
conviction”) (emphasis added); People v. Roman, 2017 CO 70, ¶ 13
n.1 (noting that the Colorado Supreme Court has used “reasonable
probability” and “reasonable possibility” interchangeably to describe
the harmless error test). 2
2 In light of the fact the supreme court recently held that the People
bear the burden of showing that a trial error was harmless, James
v. People, 2018 CO 72, ¶¶ 18-19, the harmless error and
constitutional harmless error tests now appear identical in
Colorado. See Hagos v. People, 2012 CO 63, ¶ 11 (a constitutional
error is harmless beyond a reasonable doubt if there is no
“reasonable possibility that [it] might have contributed to the
conviction” (quoting Chapman v. California, 386 U.S. 18, 24
(1967))). This seems counterintuitive: shouldn’t it be easier for a
defendant to obtain reversal based on a violation of his
constitutional rights than for a garden-variety trial error? But that
is not for us to say; we must simply apply supreme court precedent.
7
2. Applicable Law
¶ 14 The Colorado Rules of Evidence govern the admissibility of
expert testimony. A witness may offer expert testimony if she has
“scientific, technical, or other specialized knowledge” that “will
assist the trier of fact to understand the evidence or to determine a
fact in issue,” and she is “qualified as an expert [based on that]
knowledge, skill, experience, training, or education.” CRE 702.
“Testimony in the form of an opinion or inference” isn’t
objectionable merely because it embraces an ultimate issue to be
decided by the fact finder, CRE 704, but an expert witness can’t tell
the jury what result to reach or form conclusions for the jurors that
they are competent to reach on their own. People v. McFee, 2016
COA 97, ¶¶ 76-77. Such impermissible testimony may include
applying the law to the facts to reach a conclusion. United States v.
Duncan, 42 F.3d 97, 101 (2d Cir. 1994) (“Generally, the use of
expert testimony is not permitted if it will ‘usurp . . . the role of the
jury in applying [the] law to the facts before it.’” (quoting United
States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991))); cf. People
v. Lawrence, 2019 COA 84, ¶¶ 30-34 (expert’s testimony on
materiality didn’t usurp the jury’s role where expert only “provide[d]
8
general testimony about when facts might be considered material”
and “gave no opinion as to whether [the defendant] committed any
of the crimes charged”).
¶ 15 In securities fraud cases, expert testimony on whether a
particular transaction involved a security is acceptable under
certain circumstances, as is testimony on the meaning of
materiality and whether certain types of statements or omissions
could be considered material. See, e.g., Lawrence, ¶¶ 30-34 (expert
properly testified about what qualifies as a security, that the
contract in question was a security, when a sale of a security is
fraudulent, and what facts “might be material”); Pahl, 169 P.3d at
182 (testimony that a transaction involved a security and that the
defendant’s alleged omissions were material didn’t usurp the jury’s
role); People v. Prendergast, 87 P.3d 175, 181 (Colo. App. 2003) (the
trial court didn’t err in allowing an expert to define materiality and
to describe securities transactions as “seller beware”); People v.
Rivera, 56 P.3d 1155, 1164 (Colo. App. 2002) (the trial court didn’t
err in allowing testimony that an agreement was a security and that
certain information the defendant allegedly knew but didn’t disclose
was material and should have been disclosed). But even such
9
testimony “risks crossing th[e] line” between “acceptable opinion to
unacceptable interference with the court’s or the jury’s role.” Pahl,
169 P.3d at 182; see also id. (noting that it was a “close question”
whether the expert testimony at issue crossed the line).
¶ 16 So where is that line? It seems relatively clear that an expert
witness testifying in these sorts of cases can opine on the
requirements of securities laws; the meanings of certain concepts,
such as materiality; whether a particular transaction involved a
security; and, if a certain set of facts is as alleged, whether a
particular statement or omission was material, within the meaning
of the securities laws. The decisions by divisions of this court in
Lawrence, Pahl, Prendergast, and Rivera involved such testimony.
Even so, such an expert should not be allowed to opine on whether
the prosecution’s factual allegations are true — that is, for example,
whether the defendant did or did not say or do something, or
whether particular events did or did not occur. Such testimony
implicates a weighing of the evidence and determinations of
credibility — matters that are for the jury alone to decide. See
People v. Bridges, 2014 COA 65, ¶ 11 (“[I]t is solely the jury’s
responsibility to determine whether a particular witness’s testimony
10
or statement is truthful.”); People v. Duncan, 109 P.3d 1044, 1046
(Colo. App. 2004) (“[T]he resolution of inconsistent testimony and
determination of the credibility of the witnesses are solely within the
province of the jury.”); see also Lawrence, ¶ 33 (the trial court didn’t
allow the expert to testify “whether there were material
misrepresentations”). And, of course, a witness can’t be allowed to
apply the law to the facts in a way that implies (or expresses) that
the witness has determined the defendant’s guilt. People v. Penn,
2016 CO 32, ¶ 31; see People v. Lesslie, 939 P.2d 443, 450 (Colo.
App. 1996) (expert witness may not “simply tell the jury what result
to reach”).
¶ 17 In United States v. Scop, 846 F.2d 135 (2d Cir. 1988), for
example, the court held that an expert’s testimony that the
defendants were “active” and “material” participants “in a
manipulative and fraudulent scheme” to manipulate stock price in a
particular company improperly invaded the province of the jury.
The witness repeatedly phrased his opinions in the language of the
relevant statutes, expressed conclusions that amounted to
determinations of guilt, and indicated that his opinions “were based
on his positive assessment of the trustworthiness and accuracy of
11
the testimony of the government’s witnesses.” Id. at 138-42; see
also Lawrence, ¶ 34 (the expert witness didn’t give an opinion on
whether the defendant committed any of the crimes charged, which
would have been improper).
3. Application
¶ 18 Applying these principles, we conclude that Alves’s testimony
crossed the line between permissible and impermissible expert
testimony in several ways.
¶ 19 After talking about the purpose of the securities laws and
explaining the seller’s disclosure obligations generally, Alves said
that the Attorney General’s Office had asked her to review the
investigative materials to determine (1) whether there had been “an
offer, sale or purchase of a security”; and (2) “whether or not any
material omissions or material misstatements occurred in the sale of
the security.” (Emphasis added.) She reviewed the reports of
interviews with the investors and persons associated with the
promotion (including Baker), financial information compiled by the
Attorney General’s Office, documents provided to the investors, and
perhaps other unspecified documents. Alves then testified at length
about (1) what she believed Baker had told the investors; (2)
12
whether Baker’s statements were material; and (3) whether the
things Baker had promised to the investors had come to pass. And
she did so not in hypothetical terms — i.e., if Baker did or did not
say or do something — but in terms expressing certain conclusions
as to what had occurred based on her assessment of the evidence.
For example:
1. Alves testified that the investors “were told by the
defendant that he would not be taking a salary until
Aviara was up and running or until it was profitable.
When, in fact, the financial information I reviewed
indicated that he took the investor proceeds right away
and paid himself. That was clearly a material fact, in my
opinion, to tell someone that, I’m going to work for free. .
. . I’m not even going to take a salary.” And she testified
that Baker “took the investor proceeds right away and
paid himself.”
2. She said Baker “stat[ed] to all investors that there were
. . . Class A investors who were poised to invest.” But
“[i]t did not appear that there were any Class A investors
imminent. And that was quite material.”
13
3. She testified that Baker “told the investors that [their
investment funds] would be held in escrow” but that
“there was no escrow account at all.”
4. She said, “[T]hey had been told that they would at least
get their principal back within one year. So that is
another factor that is material.”
5. Alves later defended her reliance on the investors’
reported statements, saying that since the interview
reports prepared during the state’s investigation included
the same statements from each investors, that
“suggest[ed] the statements were consistently spoken by
the defendant from investor to investor.”
6. She testified that the investigator who interviewed each
investor reported Baker’s alleged representations to each
investor in identical terms. When defense counsel asked
Alves whether the investigator should have instead noted
“exactly what the witness told” the investigator, she said,
“I don’t have any reason to believe that’s not what they
were told.”
These statements were improper, for at least two reasons.
14
¶ 20 First, by saying these things, Alves told the jury what had
happened in the case. Though Alves didn’t specifically tell the jury
that she thought the investors were telling the truth, she spoke as
though their allegations were true, which suggested that she had
drawn her own conclusions about the investors’ credibility. And
she phrased her opinions about what had happened definitively, as
though there was no dispute that what she relayed was true. But
these facts were largely disputed: Baker’s theory of defense was that
he never made the alleged statements to the investors. So whether
the investors were telling the truth about what happened was a
matter solely for the jury’s determination. Duncan, 109 P.3d at
1046.
¶ 21 Second, Alves’s testimony on whether the alleged statements
were material went too far. Though generalized conclusions about
what types of statements an investor could find material are
acceptable, such testimony may be improper if, as in this case, it
assesses witness testimony, indicates a belief in a particular version
of the facts, and then applies the law to those facts to make
conclusions reserved for the jury. See Scop, 846 F.2d at 142.
15
¶ 22 We further conclude that the district court’s error wasn’t
harmless with respect to Baker’s securities fraud and theft
convictions. 3 Alves testified that she based her conclusions in part
on information not shared with the jury, including Baker’s interview
with investigators, thereby implying that she knew more about the
facts than they did. Despite the fact Baker disputed the allegations
about what he had said, Alves testified about them with authority
and as though they were fact. And she then told the jury that the
statements Baker had made (not was alleged to have made) were
material; therefore, by necessary implication, she opined that Baker
was guilty.
¶ 23 The danger that the jury credited Alves’s improper opinions is
especially acute given that she testified as an expert, was employed
by the State (and, as she told the jury, was “part of the process for
3 Alves’s objectionable testimony, as discussed above, related to
statements that Baker allegedly made to each investor, and
therefore related to each securities fraud and theft charge. The
error was harmless, however, with respect to Baker’s conviction for
filing a false tax return. None of Alves’s objectionable testimony
related to that charge, and none of the alleged statements that Alves
attributed to Baker formed the basis of that charge. In fact, Alves
didn’t mention taxes at all. The prosecution called a different
witness to testify about tax fraud.
16
selecting the cases for enforcement” and “one of the decision-
makers who decides whether it’s going to be administrative, civil, or
a criminal case”), and testified as to technical matters about which
the jurors were likely to afford her particular credibility. See People
v. Koon, 724 P.2d 1367, 1371 (Colo. App. 1986) (“[T]he therapist’s
status as an expert witness augmented her [improper] testimony
with an aura of trustworthiness and reliability.”); 4 Jack B.
Weinstein & Margaret A. Berger, Weinstein’s Federal Evidence §
702.02[5], at 702-21 (2d ed. 2015) (“In jury trials, the danger of
prejudice resulting from the presentation of expert testimony is
significant, because of the potential for the jury to automatically
accept an expert witness’s testimony.”); cf. United States v. Montas,
41 F.3d 775, 781-84 (1st Cir. 1994) (case agent’s improper
testimony put “the expert’s stamp of approval on the government’s
theory”); United States v. Benson, 941 F.2d 598, 604 (7th Cir. 1991)
(trial court erred by allowing IRS agent to give expert opinions based
on inferences from the evidence and credibility determinations),
amended, 957 F.2d 301 (7th Cir. 1992); Domingo-Gomez v. People,
125 P.3d 1043, 1052 (Colo. 2005) (prosecutor’s remark about a
“screening process” implied that the State didn’t consider the
17
particular case weak and encouraged the jurors to “rely on the
prosecutor’s judgment instead of their own convictions”); People v.
Mendenhall, 2015 COA 107M, ¶¶ 54-56 (district attorney’s
investigator’s testimony about how many potential cases he
reviewed each year and how many of those cases resulted in
charges was impermissible “screening” testimony).
¶ 24 The People argue that any error in admitting Alves’s testimony
was harmless because the court instructed the jurors that they
could accept or reject Alves’s testimony, defense counsel fully cross-
examined her, and the prosecutor didn’t emphasize any of Alves’s
implicit credibility determinations in closing arguments. But
considered in light of so many improper statements, and in light of
Alves’s expert status, we aren’t convinced that these safeguards
were sufficient. We therefore conclude that there is a reasonable
possibility that Alves’s improper testimony contributed to Baker’s
securities fraud and theft convictions.
B. Variance
¶ 25 Next, Baker contends that the district court erred by allowing
the prosecution to present evidence that he had told Donna Taylor
that he would register the securities, when that allegation wasn’t
18
included in the indictment and the People hadn’t charged him with
selling unregistered securities. In turn, Baker argues, this error led
to another error: allowing Alves to testify about “blue sky filings”
and to tell the jury that the “general rule” is that someone selling a
security in Colorado must register it.
¶ 26 We choose to address this issue because it is likely to arise on
remand.
¶ 27 We review de novo whether a variance occurred. People v.
Rail, 2016 COA 24, ¶ 48 (cert. granted on other grounds Apr. 10,
2017). Because defense counsel preserved this issue by timely
objecting to the evidence on this basis, 4 we reverse only if any error
wasn’t harmless. See Hagos, ¶ 12.
4 The People argue that this issue wasn’t preserved because Baker
“didn’t argue that this testimony created a prejudicial variance on
the securities fraud charge relating to the Taylors.” So, they say, we
should review for plain error, not harmless error, when a party
“alters the grounds for his objection on appeal.” True, defense
counsel never used the term “variance” in his objections. But he
did say that “there is absolutely no charge that [Baker] improperly
sold unregistered securities” and “it’s not alleged to be one of the
alleged false statements that he made.” That was close enough to
preserve the issue. See Rael v. People, 2017 CO 67, ¶ 17 (“We do
not require that parties use ‘talismanic language’ to preserve an
argument for appeal.”).
19
¶ 28 A simple variance occurs when “the evidence presented at trial
proves facts materially different from those alleged in the charging
document.” People v. Smith, 2018 CO 33, ¶ 25. In such a case,
reversal is generally not required unless the variance prejudiced the
defendant’s substantial rights. See id.; Pahl, 169 P.3d at 177. A
defendant fails to establish prejudice if he does not allege that he
would have challenged the prosecution’s case differently or that he
could have produced different evidence in his defense. Pahl, 169
P.3d at 178.
¶ 29 There was a simple variance in this case. At trial, the
prosecution presented evidence that Baker had said that he would
register the securities. But the indictment alleged that Baker
“indicated to at least one investor that he did not believe he needed
to file or register the security.” The two allegations are materially
different; indeed, they arguably conflict.
¶ 30 But the variance doesn’t require reversal because it didn’t
substantially influence the verdict or prejudice Baker. Baker
argues that he was not prepared to respond to the allegation that he
told Donna Taylor he would register the securities. Yet, he doesn’t
explain how he would have challenged the prosecution’s case
20
differently had he known about this allegation ahead of time. See
id. Baker’s case focused on showing the jury that he didn’t say or
would not have said the things the victims alleged, and that he had
provided the victims with accurate information on paper. And
defense counsel attacked the registration allegation the same way. 5
Under these circumstances, and in light of the other alleged
material misstatements and omissions, we don’t see how this
variance substantially influenced the verdict or prejudiced Baker’s
substantial rights.
C. Amelioration
¶ 31 Last, Baker argues that we should reduce one of his theft
convictions (count 4, theft of over $20,000 from Ng) from a class 3
felony to a class 4 felony pursuant to section 18-1-410(1)(f)(I),
C.R.S. 2019 (postconviction relief is available where there has been
a significant change in the law affecting the applicant’s conviction
or sentence). Because we reverse all of Baker’s securities fraud and
5 For example, during closing argument, defense counsel argued
that it didn’t make sense for Baker to promise to register the
security “when literally every single document that he provided [to
Donna Taylor] clearly indicates that this is not going to be
registered.”
21
theft convictions, this argument is moot. See People v. Denhartog,
2019 COA 23, ¶ 70 (reversal of conviction renders moot a challenge
to the sentence for that conviction).
III. Conclusion
¶ 32 Baker’s securities fraud and theft convictions and sentences
are reversed. The case is remanded for a new trial on those counts.
In all other respects, the judgment is affirmed.
JUDGE FOX and JUDGE TOW concur.
22