Wednesday, November 15, 2017

The Political Prosecution of Paul Benton Weeks: How can you be charged with securities fraud when the transaction in question did not involve a security?

Paul Weeks and son
How weak is the securities fraud case against Missouri attorney and whistle blower Paul Benton Weeks? Well, the underlying transaction apparently did not involve a "security." And even if it did, prosecutors brought the case way past the statute of limitations.

If that sounds familiar to Legal Schnauzer readers, that's because it is reminiscent of the Don Siegelman case. In that fiasco, there was no evidence of an explicit quid pro quo ("something for something" deal), which is the central element in a federal funds bribery case -- and Judge Mark Fuller did not even give the jury an instruction that required an explicit quid pro quo. That's why we've written so many times that Siegelman and codefendant Richard Scrushy were convicted of a crime that doesn't exist. To make matters even more outrageous, federal prosecutors brought the case almost one full year after the five-year statute of limitations had expired.

So, it's ironic that Weeks -- whose searing affidavit helped undress  Fuller as a government-sponsored con artist -- is facing the kind of slipshod prosecution that Siegelman had to confront.

As an initial matter, you would expect a "securities fraud" case to involve a "security." But, in Missouri, you would be wrong -- especially if your name is Paul Weeks and you've made it a habit to  shine light on government and court-related abuses. Investopedia describes a security as follows:

A security is a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity's bond), or rights to ownership as represented by an option.

Was there anything with the transaction in question that fits that description? Did it involve a stock, bond, or option? Not even close. The Judicial Integrity Report (JIR) -- a non-partisan, public interest organization founded to expose and report irregularities, injustice, and corruption in our nation's courts and justice systems -- describes the Weeks transaction as follows:

The securities-fraud charge grew from a 2009 private-loan transaction between Weeks and a personal acquaintance. Weeks borrowed $200,000, signing and delivering to the private lender a personal promissory note. Over the next two years, Weeks incurred severe financial losses in the stock market and could not repay the note on schedule.

How does that square with the definition of a security, cited above? It doesn't, and the issue does not appear to be a close call. A look at Missouri's legal history backs up that assessment. From the JIR:

According to one Missouri law book, there is "little Missouri case law" on the subject of criminal securities fraud prosecutions, because only a "few" criminal securities fraud cases have ever been prosecuted in Missouri. 1A MISSOURI PRACTICE, Methods of Practice: Transaction Guide, sec. 27.40, p. 185 (3d ed., 1992). 
As late as 1995, a Missouri court acknowledged there was "no Missouri case law" on the legal standard necessary to prove a securities law prosecution in Missouri. Dumke, 901 S.W. at 102.

This is a national issue, not one limited to Missouri. Reports JIR:

Many courts have ruled that promissory notes used in personal one-on-one transactions are not securities. 
Indeed, when the United State Congress enacted the federal securities laws back in the 1930s, Congress made it expressly clear that personal and commercial promissory notes were not securities; were not to be treated as securities; and, that Congress did not intend for personal or commercial promissory notes to be treated as securities.

When you factor in the specifics of the Weeks transaction, the government's case goes from weak to putrid. From the JIR:

More disturbing is that in Missouri, other than the Weeks prosecution, there are no cases reported in which a person has been criminally charged and prosecuted for "securities fraud" for having signed a promissory note in a private transaction an then failing to repay the note. Paul Weeks appears to be the only person ever prosecuted in Missouri for having signed a personal promissory note, in a private transaction, and then failing to pay.

Like most journalists, I don't usually use the words "math" and "fun" in the same sentence. But numbers associated with the Weeks case create an exercise in arithmetic that is . . . well, downright fun -- if you block out the fact that an innocent person's freedom is being threatened:

Official court statistics in Missouri confirm that it is virtually impossible for a person to be prosecuted . . . for having signed a promissory note and then failing to repay. According to the Missouri Office of State Courts Administrators, since 2006 there have been 63,101 civil cases filed in Missouri courts . . . in which the complainant alleged that the defendant had signed a promissory note but failed to repay. Yet, not one of those 63,101 cases appears to have resulted in a criminal "securities fraud" prosecution . . .  
Statistically, this means that every person in Missouri who signs a promissory note, but fails to repay it, faces a virtually zero chance of ever being prosecuted for alleged "securities fraud." The statistical probability of being prosecuted in Missouri for signing a promissory note, but not repaying it, is numerically measured to be 0.000015% -- meaning that the probability of facing a criminal prosecution in Missouri [on such a matter] is so infinitesimally small that there is a zero to the left of the decimal point, and four zeros to the right of the decimal. The probability is very close to zero -- and it gets even closer to zero considering that only a few criminal securities prosecutions have been filed in Missouri since 1928. 

Speaking of math, here are more interesting numbers from the JIR:

In Missouri, the statute of limitations for alleged "securities fraud" is three years. The charge against Weeks is based on a private loan transaction that occurred in August 2009. Therefore, simple math would indicate that the statute of limitations in the Weeks case expired in August 2012, At that point, a Missouri prosecutor is required by . . . law, not to commence a prosecution barred by the statute of limitations. . . .  
But [Chris] Koster and the Missouri Attorney General's Office filed their untimely prosecution against Weeks anyway. These Missouri officials commenced their prosecution against Weeks on Dec. 24, 2014 -- some 30 months after the three-year statute of limitations had already run. 

The law -- and the math -- tell the same story: The criminal charges against Paul Weeks are not just weak; they are putrid.

Does that suggest Weeks is being prosecuted for political reasons? It sure does, and we examine that question in more detail next.

(To be continued)

No comments: