People v. Lee CA4/1

Opinion

Filed 3/7/14 P. v. Lee CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

THE PEOPLE, D061235

Plaintiff and Appellant,

v. (Super. Ct. No. SCD219673)

MARCELLUS LOPES LEE et al.,

Defendants and Respondents.

APPEAL from orders of the Superior Court of San Diego County, Edward P. Allard III,

Judge. Reversed and remanded with instructions.

Bonnie M. Dumanis, District Attorney, Laura E. Tanney, Chief Deputy District

Attorney, Gary W. Schons and Valerie M. Ryan, Deputy District Attorneys, for the Plaintiff

and Appellant.

Michael J. McCabe and Charles R. Khoury, Jr., for Defendant and Respondent

Francisco Jose Martinez, Jr.

Cynthia M. Jones, under appointment by the Court of Appeal, for Defendant and

Respondent Daniel Paul Romero.

No appearance for Defendant and Respondent Marcellus Lopes Lee. A jury found Marcellus Lopes Lee, Daniel Paul Romero and Francisco Jose Martinez,

Jr. (together, defendants) guilty of fraud in the offer or sale of commodities in violation of

Corporations Code section 29536 and grand theft of personal property in violation of Penal

Code section 487, subdivision (a).1 Lee and Romero were also convicted on charges of

conspiracy to defraud another of property. The jury was unable to reach a verdict on all

counts. The People appeal the trial court's orders granting a new trial on some counts and

dismissing some of those counts and others for insufficiency of the evidence.2

The People contend the trial court acted in excess of its jurisdiction and abused its

discretion when it granted a new trial on defendants' commodities fraud convictions for

instructional error; erred when it explicitly rejected section 1385 as authority to dismiss for

legal insufficiency of the evidence; erred when it treated dismissed convictions and deadlocked

counts as acquittals without having reviewed the record for substantial evidence; and abused its

discretion when it dismissed two counts against Martinez under section 1385.

Romero and Martinez3 (together, respondents) acknowledge that the trial court

misunderstood its authority under section 1385 to dismiss charges for insufficiency of the

evidence. They note that the record of the trial court's legal analysis during the three-day

hearing on the defendants' motions for new trial is often fragmented and difficult to follow, and

1 Unless otherwise indicated, further statutory references are to the Penal Code.

2 The People do not appeal the trial court's dismissal of Romero's conviction on counts seven (commodities fraud) or its dismissal of the charge against him on count six (grand theft) on which the jury was unable to reach a verdict. (The jury acquitted Lee and Martinez of those counts.) In the interests of brevity, we have omitted testimony concerning these counts.

3 Lee has not filed a respondent's brief. Accordingly, in his case, we decide the appeal on the record, the opening brief and oral argument. (See Cal. Rules of Court, rule 8.360(c)(5)(B).) 2 claim that the People have taken many of the trial court's remarks out of context. Respondents

assert the trial court understood the procedural requirements for dismissal and properly applied

the substantial evidence standard. They also contest the People's substantive arguments.

We conclude that the trial court abused its discretion when it granted the motions for

new trial on grounds of instructional error. We reject the People's argument the dismissals are

invalid because the trial court explicitly stated it was not proceeding under section 1385.

However, on this record, we cannot conclude that the trial court otherwise met all requirements

to dismiss for legal insufficiency of the evidence under that section. In dismissing the majority

of the counts against the defendants for legal insufficiency of the evidence, the trial court did

not apply the substantial evidence standard. In those instances where the trial court found that

the record contained no evidence to support the jury's verdict, the trial court's review was based

on erroneous interpretations of the legal requirements of Corporations Code section 29536

(commodities fraud) and Penal Code section 487 (theft). Accordingly, we reverse the orders of

the trial court.

FACTUAL AND PROCEDURAL BACKGROUND

From at least April 2004 to September 2006, Lee, Romero, Martinez and others

solicited several million dollars from relatives, acquaintances and members of the general

public for the purpose of trading off-exchange foreign currency (forex) contracts. They told

potential investors they had significant success trading foreign currency and promised high

returns and minimal risk through stop-loss4 discipline. With one exception, investors lost most

4 "Stop-loss" refers to "an order to sell a security or commodity at a specified price in order to limit a loss." (, as of Feb. 3, 2014.) 3 or all of their money. In some instances, defendants used investor funds to repay earlier

investors, pay promised rates of return to certain individuals or for personal expenses.

Before they ventured into forex trading, Romero employed Martinez as a sales associate

in a retail satellite television business. When that enterprise failed, Romero and Martinez

researched business opportunities on the Internet and learned there was significant profit

potential in international currency trading. In late 2003, Romero started Kingdom Advisors,

Inc. (Kingdom Advisors), a religious, nonprofit corporation. They searched online for a forex

trader and located Marcellus Lee, who operated New England Capital Trading, Inc. (NECT).

A former stockbroker, Lee started NECT in 2003. He took an introductory online course on

foreign currency trading and opened for business in early 2004.

A forex transaction involves the retail customer and a futures commission merchant

(FCM),5 who buy and sell currency on either side of a single transaction relating to the relative

value of two different currencies. The FCM can enter into offsetting transactions with another

bank or customer to mitigate its risk. It profits by charging a higher price for a particular

currency than what it will pay for the same currency. An FCM may also charge fees and per

trade commissions. An introducing broker solicits retail customers to open accounts with an

FCM. The introducing broker is not a party to the trade but is typically paid a per-trade

commission by the FCM.

5 "A company acting as a futures commission merchant must register with the Commodit[y] Futures . . . Trading Commission (CFTC), [title] 7 [United States Code section] 6d(a); and once registered, must meet registration requirements, which include maintaining net capital to cover trades and filing monthly financial reports reflecting the company's financial condition." (United States v. Walsh (7th Cir. 2013) 723 F.3d 802, 804.) 4 Forex is an extremely volatile market. Forex traders may use leverage (i.e., borrowed

funds) to increase returns. The total amount of money gained from a foreign currency

transaction is the same whether it is leveraged or nonleveraged. However, the rate of return

increases dramatically on leveraged transactions. For example, if a customer made $1,000 on a

$100,000 nonleveraged transaction (i.e., the customer pays the entire $100,000), his rate of

return would be one percent. By contrast, the same return on a transaction leveraged at a ratio

of 100 to one (i.e., the customer contributes $1,000 of his or her own money and borrows the

other $99,000), would be 100 percent. According to an executive with the National Futures

Association (NFA),6 in view of the unpredictable and volatile nature of forex trading, it is

inappropriate to guarantee a profit from trading or promise a specific rate of return.

In August 2004, Romero opened an account with an FCM. He acknowledged receiving

a risk disclosure statement, which stated: "The placing of certain orders (e.g., 'stop-loss'

orders, where permitted under local law, or 'stop-limit' orders) which are intended to limit

losses to certain amounts may not be effective because market conditions may make it

impossible to execute such orders." Notwithstanding this advisory, Kingdom Advisors's Web

site stated, "Investors may lower their exposure to risk by employing risk-reducing strategies

such as 'stop-loss' or 'limit' orders."

Romero and Martinez solicited and received more than $600,000 in loans from two

individuals to start trading. Using Lee as a trader, they had highly favorable returns for three

to five months and were able to recruit other investors. After the initial period, Lee began to

incur large trading losses. Romero and Martinez discovered that in addition to his contractual

6 The NFA is a private nonprofit entity formed for the purpose of regulating its members. It is overseen by the CFTC, a government agency. 5 share of the profits, Lee also received a commission on every trade. From August to

November 2005, NECT received a total of $211,654 from its trading accounts. Of those funds,

Lee personally received approximately $62,253, Romero personally received $10,127 and

Kingdom Advisors received approximately $91,721.

Kingdom Advisors opened its own trading account with Gain Capital (Gain), an FCM,

and received commissions or rebates on every trade regardless of performance. Romero and

Martinez stopped using Lee's services and contracted with another trader, Josh Nyland.

Nyland was not successful. Kingdom Advisors's clients lost most or all of their money.

However, according to Romero's estimates, during a period of 16 to 18 months, Gain paid

Kingdom Advisors from 10 to 30 percent of several million dollars in commissions.

In approximately late 2005, Romero and Martinez, along with Lee, decided to stop

trading in the forex market and start an FCM, known as TradeCo. They told existing clients

the only way to recoup their losses was to invest in TradeCo. They solicited other persons to

finance their new enterprise by promising high rates of return and the possibility of equity

positions. After operating for two to three months, the NFA increased TradeCo's capitalization

requirements and TradeCo ceased functioning.

On March 25, 2009, the People charged Lee, Romero, Martinez and two other

defendants7 with conspiracy to defraud, commodities fraud and grand theft for operating an

investment scheme involving forex trading. The People alleged defendants falsely claimed

substantial expertise and success trading foreign currency, promised returns of 10 to 15 percent

7 The People did not go forward with its case against a defendant who was institutionalized with dementia. At the close of the People's case-in-chief, the trial court dismissed the charges against another defendant, Bethe Anne Strickland. In the interests of brevity, we omit the evidence in the record relating to the charges against Strickland. 6 per month on investment funds and guaranteed that investors would not lose more than 20

percent of the initial value of their portfolio through the use of stop-loss mechanisms. As a

result of their misrepresentations, defendants took more than 2.4 million dollars from

individual victims, who lost most or all of their investments.

Trial began on February 28, 2011, and concluded on April 6, 2011. David Shemtov8

and Djamshid Younessi,9 business partners who had opened individual trading accounts with

NECT, testified at trial. Lee told Shemtov and Younessi that he could produce returns of three

percent a month or 25 to 30 percent a year and that the use of a stop-loss mechanism would

ensure that only a small percentage of any investment would be at risk during a trade. Lee said

he knew the forex business. His clients were very successful. Shemtov spoke with Romero a

number of times about investing. Romero said he had successfully used Lee as a trader.

In July 2004, relying on representations concerning the stop-loss provisions and rate of

return, Shemtov and Younessi each deposited $50,000 in separate trading accounts and

authorized Lee to trade those accounts. Within a week to 10 days, each investment had lost

more than 50 percent of its value.

Shemtov contacted Romero, and Romero encouraged him to keep trading and asked

him to wait six to eight months to allow them to make enough money to refund his investment.

Lee said he had made a bad decision on one trade and Shemtov could not recover his money

8 With respect to Shemtov, Lee and Romero were charged with one count of grand theft in violation of section 487, subdivision (a) (grand theft; count two) and one count of fraud in the offer or sale of commodity in violation of Corporations Code section 29536 (commodities fraud; count three).

9 With respect to Younessi, Lee was charged with one count of grand theft (count four) and one count of fraud in the offer or sale of commodity (count five). ) 7 unless he continued to trade. Shemtov closed his account and withdrew the remaining funds

($19,463.49). Romero sent $2,000 to Shemtov to reimburse him for his losses. In May 2005,

after Romero and Lee refused to provide any additional compensation, Shemtov filed a

complaint with the California Department of Corporations (CDC).

Younessi testified that the concept of stop-loss was "absolutely" important to his

decision to invest with Lee. He was led to believe a stop-loss could limit his losses to a

maximum of $1,000 to $2,000 per trade. He later learned a one percent swing in the currency

market was enough to wipe out an investor's total equity. Lee told him the loss was "one of

those things that happens once in a century" and advised him to keep trading to recoup his

losses.

After authorizing more trading, Younessi became aware of additional losses and

withdrew the balance of his account ($24,842.40). Younessi testified, "The losses were very

sudden, very sudden. And it showed me that the risk taken was in no way compatible with

what I was told the risk could be per trade. . . . [¶] . . . [¶] [Lee] took $25,000 of my money;

he got two and a half million dollars credit from the bank, without thinking for one minute that

[a] one percent swing can wipe me out of $25,000." Younessi viewed the experience as a bad,

if not stupid, business decision on his part. He did not want to waste his time trying to recover

his investment. However, his business partner, Shemtov, felt strongly about trying to recover

his money and Younessi filed a complaint with the CDC.

8 Brian Smith (Smith)10 was a certified, licensed financial advisor who became interested

in forex for his clients. He testified that he was aware that forex trading "was high risk, very

fast, very, very liquid." In late 2004 or early 2005, Smith met with Romero and Martinez to

discuss their program. Romero said they could provide a monthly return of six percent. They

had clients who were earning that rate.

In view of what he knew about the currency market and leverage, Smith believed it was

possible to obtain a high rate of return using leverage. Leverage could multiply returns but it

also multiplied risk. Smith sought a means to mitigate that risk. Before investing, Smith met

with Lee, Romero and Martinez to learn more about their trading program, including their

trading disciplines. Smith and Lee discussed foreign currency markets, liquidity leverage,

technology and stop-loss as risk mitigation in technical terms. They had a thorough discussion

of stop-loss discipline. Smith knew it was possible to lose all one's money without a risk

discipline. However, the strategies Lee described for managing risk included stop-loss

discipline and were very reassuring. According to Smith, he invested three groups of funds.

The first was his client Robert M. Smith's11 money, the second was investor funds that were

invested in a forex trading account at Gain, and the third was $75,000 that was invested in

TradeCo.

10 With respect to Smith, Lee, Martinez and Romero were each charged with one count of grand theft (count ten) and one count of commodities fraud (count eleven).

11 To avoid confusion, we refer to Brian Smith as "Smith" and Robert Smith as "Robert." We intend no disrespect to Robert Smith by the use of his first name. 9 Smith testified that his friend and client, Robert,12 was looking for a very aggressive

investment. Smith discussed what he had learned from Lee, Romero and Martinez with

Robert. He recommended to Robert that he invest with them based on the protection afforded

to his principal and the very high rate of return.

In November 2004, Robert invested $100,000 with Kingdom Advisors. He received six

percent a month for three or four months. Kingdom Advisors did not provide any account or

trade summaries. When Kingdom Advisors stopped sending checks, Smith kept

communicating with Romero, who assured him Robert's principal was intact and profits would

resume. Robert received one or two payments in the third quarter of 2005. Smith never

learned what happened to Robert's principal.

Forensic accounting showed that Robert's funds were commingled in a Kingdom

Advisors trading account where NECT had trading authority. The total initial balance was

$478,385. Of that amount, there were trading losses of $149,630.50 and withdrawals of

$328,754.50. The withdrawals included payments of $78,638 to Kingdom Advisors, $15,000

to Martinez, $11,000 to Martinez's organization, Luz de Vida, and transfers totaling $53,000 to

Romero's personal bank account. A $5,000 payment to Robert in April 2005 came from a

different source of funding from another investor's account.

During the time the defendants' forex trading enterprise appeared to be profitable, Smith

created Olympia Capital Management (Olympia). Smith believed he could build a workable

partnership with the defendants as an introducing broker. In 2005, six investors gave Smith a

total of $460,000, which he invested with the defendants. A few weeks later, the account

12 Lee, Martinez and Romero were charged with one count of grand theft (count eight) and one count of commodities fraud (count nine) with respect to Robert. 10 suffered losses of approximately 70 percent. Smith contacted Romero, who blamed the trading

loss on a young man named Josh Nyland. Smith had met Nyland but did not expect him to

have any direct role in trading his accounts. After Nyland suffered initial trading losses, he

abandoned stop-loss discipline in hopes of recovering the funds, compounding the losses.

Smith said it was a classic mistake by an inexperienced trader.

Smith met with Romero and Martinez, who said Smith could recover his assets by

investing in TradeCo. Martinez told Smith they could provide seven percent interest a month

while maintaining safety on the principal. Smith invested the funds remaining in his trading

account in TradeCo and never learned what happened to those funds.

The forensic accountant tracked the funds invested by each of Smith's investors

separately.13 In June 2005, Jeremy Connelly deposited $10,000 in a Kingdom Advisors bank

account. That $10,000, along with other deposits, was withdrawn in various transactions that

same month. Kingdom Advisors received $4,300 of Connelly's money, of which $2,500 went

to Romero's personal account. Between February and June 2006, Connelly received

approximately $3,000 in payments from Olympia.

In November 2005, Michael Mauk deposited $100,000 with Olympia, which was wired

to a trading account where Kingdom Advisors had trading authority. The trading account had

losses of $69,514 in two months, including commissions. From November 28, 2005 to

January 26, 2006, Kingdom Advisors received approximately $63,500 in payments from the

trading account. Romero received $9,500. Four thousand dollars was transferred to Romero's

13 Defendants were initially charged with separate counts of theft and commodities fraud for each investor with Smith. The trial court consolidated the charges. 11 failed satellite television business account. There is no record of any funds being returned to

Mauk.

Curtis Brown deposited $45,000 with Olympia in November 2005. A month later,

Brown's funds were deposited in a trading account. There were transfers from the trading

account to Olympia in February, May and June 2006 totaling $34,076.76. Those funds became

part of a $75,000 deposit from Olympia to Kingdom Advisors in July 2006. Of those funds,

$69,000 was deposited in a TradeCo bank account. The remaining $6,000 was used to pay part

of a settlement in a civil lawsuit to a third party. Brown eventually received $26,726.

Greg Hughes deposited $10,000 with Olympia in March 2006. Those funds, together

with Greg Sabal's $100,000 deposit, were distributed as follows: In May, $30,000 was placed

in a trading account; $35,000 was transferred to a Kingdom Advisors bank account; and in July

the rest was included in the $75,000 transfer to Kingdom Advisors. Funds from the $35,000

transfer were used for a $24,500 payment to Hoehn Motors on Romero's behalf. Other

payments were made to Disney Resort, credit cards, airlines, hotels and restaurants, and

another client's trust account. In August, $24,730 was sent from the trading account to

Olympia. Those funds, as well as Paul Cannon's funds (see below), were the source of

payments to Kingdom Advisors in September in the amounts of $90,000 and $50,000.

In September 2006, Cannon deposited a total of $152,600 with Olympia. His funds

comprised a large portion of $140,000 that went to Kingdom Advisors. A $10,000 check made

out to Daniel Romero's wife, Tabitha, was deposited in Romero's personal account. Olympia

made payments of $2,000 and $1,000 to Cannon in 2007. Cannon's money was never invested

in any trading account.

12 Ricky Lutz14 was a bank loan officer with 22 years of experience. In early 2005, Lutz

contacted Romero for information about forex. Romero sent him a brochure stating that

Kingdom Advisors had returns of 10 to 14 percent a month. The brochure stated "the

investment manager has established a stop-loss policy with authorized traders such that they

are to cease trading should any account suffer a 20 percent loss below the series' most recent

highest asset valuation."

Lutz spoke to Lee on numerous occasions. They talked a lot about stop-loss. Lutz

understood that traders kept 15 to 20 percent of all trading profits. There were no other fees or

charges. If the investment funds dropped below 80 percent of their original amount, trading

would stop and the investor would be notified. Lee showed Lutz returns showing that

investors had doubled their money in eight months. Lutz knew that a forex investor could

make a lot of money and could lose a lot of money. That was why he was "such a stickler"

about the stop-loss provision. Losing 20 percent was the worst case scenario.

Relying "100 percent" on Lee and Romero's representations, Lutz recruited four other

investors. Together, they invested $260,000 with Lee and Romero in August and September

2005. In early September, Lee sent Lutz an e-mail stating the investment was up 67 percent.

Approximately three weeks later, Lutz learned that one of his accounts had lost more than 50

percent of its initial value and another account was down approximately 40 percent. Lutz told

Lee he was in violation of their agreement and demanded that Lee restore the accounts to 80

percent of their original value. Lee said the lack of notice to Lutz at the 20 percent mark was

14 Lee and Romero were charged with grand theft (count twelve) and commodities fraud (count thirteen) with respect to Lutz. 13 an oversight. He had some safer, small trades that would bring the account balances back to

their original amounts. Lutz authorized Lee to continue trading.

On October 12, 2005, Lutz told Lee to close his accounts and return the balances

totaling $105,000 to him. On November 6, Lee notified Lutz he had closed the trading account

and was ending his forex trading career. Lee said Lutz's account was down approximately 90

percent but he had a solution that would help them both succeed. He asked Lutz to invest his

investors' remaining funds ($24,162) in his new FCM, TradeCo, promised to return the

expected profits on his original investment, and asked Lutz to invest additional funds in

TradeCo. After declining Lee's offer, Lutz received a payment of $24,162, which he returned

to one of his investors. He filed a complaint with the CFTC.

Forensic accounting showed Lutz deposited $145,000 in two trading accounts in August

2005. Those funds were not commingled. Between August and November 2005, there were

trading losses of $130,436, including commissions and fees, and withdrawals of $14,564 from

those two accounts. In August and September, Lutz deposited another $115,000 in other

trading accounts, which was commingled with other funds. Between August and November

2005, there were trading losses of $269,588 in those accounts, including commissions and fees,

and withdrawals of $18,838.

Martinez testified on his own behalf. He said Lee was very successful trading for three

to five months. Martinez was not responsible for the way trades were conducted. He did not

have access to trading accounts or records. He did not have any authority over the

disbursement of funds from Kingdom Advisors. Martinez said he did not misrepresent

Kingdom Advisors's success to any prospective clients or guarantee that a client would not lose

14 his or her investment. Martinez confronted Romero about his use of Kingdom Advisors funds.

Romero had built a pool at his home, and purchased a Porsche and a BMW, all-terrain

vehicles, a trailer and jewelry. Martinez was vice president of Kingdom Advisors, a partner in

TradeCo, but he did not have an ownership interest in the company. Martinez acknowledged

that he had signatory authority for Kingdom Advisors's bank accounts and signed documents

as the vice president of Kingdom Advisors. He had trading authority over the accounts.

Romero testified that when he spoke to potential clients, he simply relayed his

experience in the market during the early months of trading. He promised "best efforts" but

never guaranteed a specific rate of return. Romero was not responsible for Kingdom

Advisors's Web site, which stated that stop-loss discipline would be used to limit losses.

Martinez developed the Web site. Its content came from Gain. Any guarantees on stop-loss

were made through Gain.

After deliberating for more than a week, the jury found Lee guilty of conspiracy (count

one), commodities fraud (counts nine, eleven and thirteen) and grand theft (count twelve) but

was unable to reach a verdict on two other counts of commodities fraud (counts three and five)

and four other counts of grand theft (counts two, four, eight and ten).

The jury convicted Romero on charges of conspiracy (count one), commodities fraud

(counts eight, ten and twelve) and grand theft (counts seven, nine, eleven and thirteen). It was

unable to reach a verdict on one count of commodities fraud (count two) and one count of

grand theft (count three).

The jury found Martinez guilty of commodities fraud (counts nine and eleven). It was

unable to reach a verdict on two counts of grand theft (counts eight and ten). As to all

15 defendants, the jury made true findings on three white collar penalty enhancements under

sections 186.11 and 12022.6.

The defendants filed motions for new trial under section 1181, subdivision (6) (hereafter

section 1181(6)) on the ground there was insufficient evidence to support the verdicts. In

discussing the motions prior to the formal hearing,15 the court and parties raised a number of

issues requiring further briefing, including whether a new trial should be granted on the

commodities fraud counts, or the charges dismissed under section 1385, because the court did

not provide the jury with instructions on juror unanimity and what constitutes a "material fact,"

and whether the jury could properly convict Martinez of commodities fraud on an adoptive

admissions theory. Martinez filed a brief arguing that a new trial was required on grounds of

instructional error under section 1181, subdivision (5) (hereafter section 1181(5)). Lee and

Romero joined in his argument. The People responded.

The hearing on the motions for new trial was held on November 2, 3 and 4, 2011. The

trial court dismissed counts two, three, four and five (Shemtov-Younessi counts), finding there

was insufficient evidence to show those counts were filed within the four-year statute of

limitations. It granted a new trial on the remaining counts of commodities fraud (counts nine,

eleven and thirteen) because it had failed to instruct the jury on unanimity and the legal

definition of the term "material."

The trial court dismissed the defendants' convictions on count nine for insufficiency of

the evidence, reasoning that the victim's testimony was necessary to show that he relied on

15 The record transcripts from the earlier hearings are not included in the record on appeal. Information concerning the earlier hearings is from the trial court's remarks at the hearing on the new trial motions. 16 defendants' untrue statements about material facts. It also dismissed Lee's and Romero's

convictions on count thirteen because there was insufficient evidence in the record to show

they made any materially false statements to the victim.

The trial court dismissed Martinez's conviction on count eleven, stating "the record

[was] void" of evidence to show that the victim relied on any material false statement by

Martinez. When asked by Martinez's counsel whether the ruling on count eleven was made

under section 1385, the trial court said, "No. [¶] . . . [¶] In fact, all of my rulings thus far on

counts [two], [three], [four], [five], [nine] and [eleven] are on the issue of sufficiency."

The trial court dismissed deadlocked counts one and ten as to Martinez for insufficiency

of the evidence and, alternatively, in the interests of justice under section 1385. The trial court

dismissed counts eight and twelve on grounds of insufficient evidence to show theft-by-trick or

embezzlement.

At the close of the hearing for new trial, Lee was convicted of conspiracy and faced

retrial on one count of grand theft (count ten) and two counts of commodities fraud (counts

nine and eleven).16 The court left intact Romero's convictions on charges of conspiracy and

16 The minute order of November 2, 2011, states that Lee's motion for a new trial on counts one, nine, eleven, twelve and thirteen was granted. The record transcript shows that the trial court did not grant Lee's motion for new trial on counts one and twelve. A record that is in conflict will be harmonized if possible. If it cannot be harmonized, the portion of the record that will prevail against contrary statements in another portion of the record will depend on the circumstances of each particular case. (People v. Harrison (2005) 35 Cal.4th 208, 226.) The minute order of November 4, 2011, states, "The Court makes a record that Defendant Lee has been found guilty of Count [one] by jury verdict . . . ." The trial court dismissed count twelve on other grounds. The record transcript prevails over the clerk's minutes. Accordingly, the erroneous statement in the November 2, 2011, minute order concerning a new trial on counts one and twelve is of no effect. 17 grand theft (count ten), and granted his request for a new trial on commodities fraud (count

eleven). Martinez's convictions were dismissed. He was not subject to retrial on any counts.

DISCUSSION

I

GRANT OF NEW TRIAL FOR INSTRUCTIONAL ERROR

A

The Parties' Contentions

The People contend the court erred as a matter of law when it granted a new trial on the

defendants' convictions for commodities fraud (counts nine, eleven and thirteen) on the ground

of instructional error. They argue the defendants did not raise instructional error in their

motions for a new trial and the court did not have the authority to grant a new trial on that

ground sua sponte. The People further argue the court had no duty to give a unanimity

instruction or provide a definition of the term "material" to the jury.

Respondents contend the People forfeited their claim of procedural error under section

1181 when they did not object to the court's request for briefing on instructional error under

section 1181(5) and in fact briefed the issue prior to the hearing on the motions for new trial.

Respondents further contend the trial court did not abuse its discretion when it concluded it

was required to instruct the jury on unanimity and define the term "material," and its failure to

do so was not harmless error.

18 B

Statutory Framework for Motion for New Trial and Standard of Review

"A criminal defendant may move for a new trial on specified grounds (§ 1181)."

(People v. Ault (2004) 33 Cal.4th 1250, 1260.) Those specified grounds include, as relevant

here, when "the court has misdirected the jury in a matter of law[] or has erred in the decision

of any question of law arising during the course of the trial . . . ." (§ 1181(5).)

"A motion for new trial may be granted only upon a ground raised in the motion."

(People v. Masotti (2008) 163 Cal.App.4th 504, 508.) A defendant forfeits any claim of error

on appeal based on a specific argument the defendant did not raise in his or her motion for new

trial. (People v. Verdugo (2010) 50 Cal.4th 263, 309; Masotti, at p. 508 [allowing court to

grant a new trial on a ground not raised by the moving party would be the equivalent of

allowing the court to grant a new trial on its own motion, an act which exceeds its authority];

see People v. Clark (2011) 52 Cal.4th 856, 979, fn. 36 [trial court has no authority to grant a

new trial on grounds not raised by defendant in his or her motion for new trial].)

A trial court should grant a mistrial only when a defendant's chances of receiving a fair

trial have been irreparably damaged. (People v. Verdugo, supra, 50 Cal.4th at p. 308; People

v. Clark, supra, 52 Cal.4th at p. 990.) Before ordering a case retried, the trial court must make

its independent determination, under article VI, section 13 of the California Constitution, that

error occurred and the error prevented the complaining party from receiving a fair trial. The

trial court has no discretion to award a new trial where no prejudicial error occurred. (People

v. Ault, supra, 33 Cal.4th at pp. 1262-1263.) The trial court's ruling on a new trial motion will

19 be disturbed only for clear abuse of discretion. (Id. at p. 1260.) However, "assertions of

instructional error are reviewed de novo." (People v. Shaw (2002) 97 Cal.App.4th 833, 838.)

C

Claim That the Trial Court Exceeded Its Authority When It Granted a New Trial on Grounds of Instructional Error

The People contend the defendants' motions for new trial were made pursuant to section

1181(6) on the ground that the verdicts were contrary to law or evidence, and trial court acted

in excess of its authority when it raised claims sua sponte under section 1181(5) on grounds of

instructional error and then granted the new trial motions on those grounds. On November 2,

2011, at the beginning of the hearing on the motions for new trial, the trial court stated, "As

everybody knows, this matter was continued until today's date. The Court and the parties had

raised a number of issues that the Court believed required additional briefing in this

matter . . . . In that regard, I did in fact receive additional pleadings . . . on behalf of

the . . . People[] and . . . Mr. Martinez."

The record shows Martinez filed a brief arguing that a new trial was required on

grounds of instructional error under section 1181(5), Lee and Romero joined in his argument

and the People responded. At the hearing on the motions for new trial, the People did not

object to the trial court's consideration of and ruling on the section 1181(5) issues. Thus they

have forfeited their claim of procedural error on appeal. (In re Dakota H. (2005) 132

Cal.App.4th 212, 221-222.)

Even if the issue were not forfeited on appeal, the appellate record does not contain the

record transcript of the hearing or hearings at which the court and parties discussed the motion

for new trial prior to the hearing on that motion. Appellant's failure to provide an adequate 20 record on an issue requires that the issue be resolved against the appellant. (Hernandez v.

California Hospital Medical Center (2000) 78 Cal.App.4th 498, 502; see Ballard v. Uribe

(1986) 41 Cal.3d 564, 574 [the party challenging the judgment has burden of showing

reversible error by an adequate record].) The record does not show whether the court or a

party raised the issue of instructional error. Because the People have not met their burden to

provide an adequate record, they cannot prevail on their claim the court exceeded its authority

in granting the motions for new trial on grounds of instructional error.

D

Claims of Instructional Error

Corporations Code section 29536, subdivision (b) prohibits any person, directly or

indirectly, in connection with the purchase or sale of, the offer to sell, the offer to purchase, the

offer to enter into, or the entry into, a commodity, commodity contract, or commodity to

willfully make any false report, enter any false record, make any untrue statement of a material

fact, or omit to state a material fact necessary to make the statements made, in light of the

circumstances under which they were made, not misleading. The trial court granted the

defendants' motions for new trial on commodities fraud because it did not give the jury the

legal definition of the term "material."

Relying on Model Federal Criminal Jury Instructions defining "a material fact" for

purposes of securities fraud,17 the trial court found that the jury must be provided some

guidance on the legal definition of materiality. The trial court said it properly instructed the

jury that the untrue statement had to be material but failed to provide the legal definition of the

17 (See, e.g., United States v. Smith (9th Cir. 1998) 155 F.3d 1051, 1063.) 21 term "material" to the jury. The trial court concluded that the error was not harmless because

the charging document did not refer to any particular "statement-slash-fact" and therefore the

trial court could not determine whether any statement the jury found untrue was in fact

material.

The trial court also decided that a juror unanimity instruction was required because the

People alleged in a single count that the defendant made multiple materially false statements.

In order to convict a defendant of commodities fraud, the jury was required to unanimously

agree on at least one of the false statements. The trial court ruled that the jury had no guidance

on whether the theory underlying the commodities fraud charges was the making of a false

report, a false record or an untrue statement of material fact. The trial court found that the

error was clearly not harmless and granted a new trial on defendants' convictions for

commodities fraud.

1. Materiality

The People contend the trial court had no duty to define materiality because there is no

legal definition of the term within Corporations Code section 29536 or other relevant statutes.

They argue the term "material" is commonly understood to mean "having real importance or

great consequence" and does not have a technical meaning peculiar to commodities fraud that

would require the trial court to define the term for the jury. (See People v. Richie (1994) 28

Cal.App.4th 1347, 1360.) Alternatively, the People contend the trial court abused its discretion

when it determined the error was not harmless.

Respondents counter that in the context of commodities fraud, "material" does not

merely mean important or significant. Relying on state and federal securities fraud cases, they

22 argue the trial court was required to instruct the jury "a fact is material if there is a substantial

likelihood that, under all the circumstances, a reasonable investor would consider it important

in reaching an investment decision." (See Basic Inc. v. Levinson (1988) 485 U.S. 224, 231;

People v. Butler (2012) 212 Cal.App.4th 404, 421 (Butler); Insurance Underwriters Clearing

House, Inc. v. Natomas Co. (1986) 184 Cal.App.3d 1520, 1526; Persson v. Smart Inventions,

Inc. (2005) 125 Cal.App.4th 1141, 1163.) Respondents further contend the trial court did not

clearly abuse its discretion when it found that the instructional error was not harmless.

Assuming, without deciding, the term "material," as used in Corporations Code section

29536, has a technical meaning peculiar to the law and requires jury instruction, we conclude

that the trial court abused its discretion when it determined that its failure to give such an

instruction was prejudicial error. The People presented evidence showing that the defendants

falsely claimed substantial expertise and success trading foreign currency, promised returns of

10 to 15 percent per month on investment funds, and guaranteed that investors would not lose

more than 20 percent of the initial value of their portfolio through the use of stop-loss

mechanisms. Although no California appellate court has previously addressed this issue,

federal courts considering claims of commodities fraud have held that statements pertaining to

expertise and success in trading, rate of return and risk are material facts. (CFTC v.

International Financial Services (New York), Inc. (S.D.N.Y. 2004) 323 F.Supp.2d 482, 501,

499-500, 502-503 (IFS, Inc.) ["misrepresentations concerning profit and risk go to the heart of

a customer's investment decision and are therefore material as a matter of law"; false

representations regarding a broker's expertise are material]; see also CFTC v. Vartuli (2000)

228 F.3d 94, 102 [misrepresentations as to experience of a particular commodities trader and

23 the degree of risk involved in the highly speculative venture of commodities trading constitute

fraud].) We agree. Any fact that enables customers to independently assess the risk inherent

in their investment and the likelihood of profit is a material fact. (See CFTC v. Matrix Trading

Group, Inc. (S.D.Fla. Oct. 3, 2002, No. 00-8880-CIV-ZLOCH) [2002-2003 Transfer Binder]

Comm. Fut. L. Rep. (CCH) ¶ 26,943, at 44, 563-64 (CFTC Jan. 14, 1997); see also CFTC v.

Arrington (D.Neb., Jan. 28, 2014, No. 8:11CV181) 2014 U.S. Dist. LEXIS 10203.) Here, the

alleged statements concerned expertise and success in trading, rate of return and risk and were

therefore material.

In addition, the record does not indicate the jury had any problems with the meaning of

the term "material" when it convicted the defendants of commodities fraud. The record

contains ample evidence to show the defendants misrepresented their expertise in forex

trading, the success of that trading, rates of return for earlier investors, their strategies for

minimizing risk and the investors' exposure to risk. The jury could conclude that the

experience and training of the foreign currency trader, his or her strategies for minimizing risk

and the accuracy of representations regarding past customer gains and losses were " 'important

in making an investment decision' " and therefore material. (See IFS, Inc., supra, 323

F.Supp.2d at pp. 500, 499, 501-503.) We conclude that the trial court abused its discretion

when it determined the jury could have based its verdict on a nonmaterial fact and therefore the

instructional error was not harmless.

2. Unanimity

The People argue the trial court erred when it granted a new trial on the ground it was

required to instruct the jury it had to unanimously agree on the particular statement that

24 constituted commodities fraud. The People contend the defendants' representations and actions

comprise a continuous course of conduct for which no unanimity instruction is required. The

People also maintain that the trial court did not articulate and correctly apply the required

harmless error analysis.

Respondents argue a unanimity instruction was required because the People presented

evidence of many different alleged acts in violation of Corporations Code section 29536,

including promising the victims a large rate of return, implementation of stop-loss to prevent

large losses, using marketing materials based on an inaccurate evaluation of past performance,

not disclosing losses by earlier investors, misstating their expertise in forex trading and, in the

case of Smith, using a less experienced trader than Lee. Respondents contend there is no

unitary defense to the alleged acts, and they do not constitute a continuous course of conduct.

In a criminal case, the jury must agree unanimously that the defendant is guilty of a

specific crime. (People v. Russo (2001) 25 Cal.4th 1124, 1132 (Russo).) When the evidence

suggests more than one discrete crime, the prosecution must elect among the crimes or the

court must require the jury to agree on the same criminal act. (Ibid.) This requirement " 'is

intended to eliminate the danger that the defendant will be convicted even though there is no

single offense which all the jurors agree the defendant committed.' " (Ibid., quoting People v.

Sutherland (1993) 17 Cal.App.4th 602, 612.)

The trial court misinterpreted the law in concluding it was required to give a unanimity

instruction to guide the jury on the theory underlying the commodities fraud charges, whether

it was the making of a false report, a false record, or an untrue statement of material fact. Here

the evidence does not suggest more than one discrete crime. (Russo, supra, 25 Cal.4th at

25 p. 1132.) Jurors need not be unanimous as to a particular theory of liability so long as they are

unanimous that the defendant has committed the underlying substantive offense. (People v.

Davis (1992) 8 Cal.App.4th 28, 44, 45 [where there is a single offense and a single charge, it is

the task of each juror to conclude, based perhaps on very different theories, whether defendant

is guilty or not guilty].) Nothing in the record suggests the jury may have been confused by

the charges, nor do respondents offer any evidence to suggest this was the case. The jurors

were not required to agree on the particular misrepresentations or omissions they relied on for

the convictions because that finding merely relates to the manner of committing the crime.

(Butler, supra, 212 Cal.App.4th at p. 426.) A decision that rests on an error of law constitutes

an abuse of discretion. (Carrillo v. Superior Court (2006) 145 Cal.App.4th 1511, 1523-1524.)

We conclude that the trial court abused its discretion when it granted a new trial on defendants'

convictions for commodities fraud.

II

POSTTRIAL DISMISSAL OF CRIMINAL CHARGES

Legal Principles

The double jeopardy clause of the Fifth Amendment to the United States Constitution

provides that no person shall " 'be subject for the same offense to be twice put in jeopardy of

life or limb . . . .' " (People v. Santamaria (1994) 8 Cal.4th 903, 910; see also Cal. Const., art.

I, § 15 [" 'Persons may not twice be put in jeopardy for the same offense . . . .' "].) " '[T]he

Double Jeopardy Clause bars retrial following a court-decreed acquittal, even if the acquittal is

'based upon an egregiously erroneous foundation.' " (Evans v. Michigan (2013) 133 S.Ct.

26 1069, 1074 (Evans), quoting Fong Foo v. United States (1962) 369 U.S. 141, 143.) The

United States Supreme Court has long held that a verdict of acquittal cannot be reviewed on

appeal, on error or otherwise, without putting a defendant twice in jeopardy and thereby

violating the Constitution. (Evans, at p. 1074, citing United States v. Ball (1896) 163 U.S. 662,

671.) However, if a court grants a motion to acquit after the jury has convicted, there is no

double jeopardy barrier to an appeal by the government from the court's acquittal, because

reversal would result in reinstatement of the jury verdict of guilt, not a new trial. (Evans, at

p. 1081, fn. 9.)

Section 1385 permits a trial court, on its own motion or upon the application of the

prosecuting attorney, and in furtherance of justice, to order an action to be dismissed. A

dismissal for legal insufficiency is in furtherance of justice. (People v. Hatch (2000) 22

Cal.4th 260, 268 (Hatch).) By contrast, "a court has no authority to grant an acquittal in

connection with [a section] 1181 [new trial] motion." (Porter v. Superior Court (2009) 47

Cal.4th 125, 133 (Porter).) Nevertheless, a defect in the form of the motion should not be

construed to undermine the trial court's duty to protect the fundamental rights of the accused.

(People v. Fosselman (1983) 33 Cal.3d 572, 582 (Fosselman).) An acquittal encompasses any

ruling that the prosecution's proof is insufficient to establish criminal liability for an offense,

including a ruling by the court the evidence is insufficient to convict, a factual finding that

necessarily establishes the defendant's lack of criminal culpability and any other ruling relating

to the ultimate question of guilt or innocence. (Evans, supra, 133 S.Ct. at pp. 1074-1075; see

Burks v. United States (1978) 437 U.S. 1, 16-18, 10 [trial court's ruling of legal insufficiency is

functionally equivalent to an acquittal and bars retrial]; Sanabria v. United States (1978) 437

27 U.S. 54, 71 [an acquittal is a resolution, correct or not, of some or all of the factual elements of

the offense charged].)

A dismissal will be construed as being based on legally insufficient evidence only if

"the record clearly indicates that the trial court applied the substantial evidence standard."

(Hatch, supra, 22 Cal.4th at p. 273.) "Specifically, the record must show that the court viewed

the evidence in the light most favorable to the prosecution and concluded that no reasonable

trier of fact could find guilt beyond a reasonable doubt. [Citation.] Absent such a showing, we

will assume the court did not intend to dismiss for legal insufficiency and foreclose

reprosecution." (Ibid.)

A trial court's review for legal insufficiency of the evidence under section 1385 is not

the same as its review of the evidence "thirteenth juror" in a new trial motion under section

1181(6). (People v. Salgado (2001) 88 Cal.App.4th 5, 9-10 (Salgado).) As a thirteenth juror,

the trial court independently examines all the evidence to determine whether it is sufficient to

prove each required element beyond a reasonable doubt to the judge. (Id. at p. 10; Porter,

supra, 47 Cal.4th at p. 133.) When the trial court disagrees with the jury's resolution of

conflicting evidence and concludes that a guilty verdict is against the weight of the evidence,

reversal or dismissal on that ground does not bar retrial. (Hatch, supra, 22 Cal.4th at p. 272;

Tibbs v. Florida (1982) 457 U.S. 31, 42, 45, fn. 22, 46.)

If the trial court has dismissed a conviction for legal insufficiency of the evidence, the

reviewing court engages in precisely the same task as the trial court and determines, without

reweighing the evidence, whether there was sufficient evidence to permit a rational jury to

convict. (Salgado, supra, 88 Cal.App.4th at p. 15.) A trial court's postconviction dismissal of

28 a jury's verdict based on insufficiency of evidence is an appealable order. Judgment may be

entered on the underlying jury verdict without violating state or federal prohibitions against

double jeopardy. (Id. at pp. 7-8.)

By contrast, if the jury has not been able to reach a verdict and the trial court rules the

evidence is insufficient as a matter of law to sustain a conviction, double jeopardy bars retrial

even if the court's ruling is patently erroneous or the court has no statutory authority to make it.

(Hatch, supra, 22 Cal.4th at pp. 270-271; see Sanabria v. United States, supra, 437 U.S. at

p. 75 [there is no exception permitting retrial once the defendant has been acquitted, no matter

if the acquittal is egregiously erroneous].) However, if a defendant seeks termination of the

proceedings against him on a basis unrelated to his factual guilt or innocence, double jeopardy

does not preclude the government from appealing the dismissal and does not bar appellate

review. (Evans, supra, 133 S.Ct. at p. 1075, citing United States v. Scott (1978) 437 U.S. 82,

99 (Scott).)

B

Issues of General Applicability

Many of the issues raised in this appeal are specific to the criminal charge involving a

particular victim. To avoid repetition, we first address two issues the parties raise throughout

their briefing.

1. The dismissals are not invalid solely because the trial court did not invoke section 1385

The People claim section 1385 is the only legal authority that permits a trial court to

dismiss a count after the case is submitted to the jury. (Porter, supra, 47 Cal.4th at p. 133

[trial court has no authority to grant an acquittal in connection with a § 1181 motion]; Hatch,

29 supra, 22 Cal.4th at p. 269 [section 1385 permits dismissals for legal insufficiency of the

evidence after the case is submitted to the jury].) Relying on Hatch, the People argue the

dismissals are procedurally invalid because in all but two rulings (see Discussion, pt. IV.B,

post), the trial court either explicitly stated it was not dismissing the counts pursuant to section

1385 or did not reference section 1385 in its remarks or minute orders.

The People misconstrue Hatch. The central issue in Hatch is whether the constitutional

prohibitions against double jeopardy bar retrial after a dismissal under section 1385. (Hatch,

supra, 22 Cal.4th at p. 263.) The case does not address whether section 1385 is the sole

authority for dismissal after the case has been submitted to a jury. Relying on United States

Supreme Court precedent, Hatch states that an acquittal for double jeopardy purposes is not

controlled by the form of the judge's action. (Hatch, at p. 270, citing United States v. Martin

Linen Supply Co. (1977) 430 U.S. 564, 571.) "Rather, appellate courts 'must determine

whether the ruling of the judge, whatever its label, actually represents a resolution, correct or

not, of some or all of the factual elements of the offense charged.' " (Hatch, at p. 270, quoting

Martin Linen Co., at p. 571.)

The trial court's apparent misunderstanding of its authority to dismiss for legal

insufficiency of the evidence under section 1385 does not control our analysis. A defect in the

form of the motion should not be construed to undermine the trial court's duty to protect the

fundamental rights of the accused. (Fosselman, supra, 33 Cal.3d at p. 582.) A dismissal will

be upheld if the record establishes that all the conditions required under section 1385 are

satisfied. (Salgado, supra, 88 Cal.App.4th at pp. 9-10.) The trial court's disavowal of section

1385 is not dispositive of the issue. Instead, we review the record to determine whether it

30 clearly shows that the trial court viewed the evidence in the light most favorable to the

prosecution and concluded that no reasonable trier of fact could find guilt beyond a reasonable

doubt. (Hatch, supra, 22 Cal.4th at p. 273.)

2. We need not consider respondents' claim that double jeopardy bars appellate review of counts of conviction after a grant of new trial

Appellate review of dismissal of convictions does not implicate double jeopardy.

(Evans, supra, 133 S.Ct. at p. 1081, fn. 9 [on a conviction, there is no double jeopardy barrier

to an appeal by the government from the court's acquittal because reversal would result in

reinstatement of the jury verdict of guilt, not a new trial].) Respondents argue the grant of their

new trial motions on the commodities fraud counts renders their convictions on those charges

the functional equivalent of acquittal; therefore review of the dismissal of those counts is

barred by double jeopardy. Because we have concluded that the trial court erred when it

granted defendants' motions for new trial on grounds of instructional error on the commodities

fraud counts, we need not address respondents' argument concerning the application of double

jeopardy to defendants' convictions for commodities fraud.

III

DISMISSAL OF CONVICTIONS

The Trial Court Erred When It Dismissed the Defendants' Convictions on Count Nine (Commodities Fraud, Robert Smith)

1. The trial court's ruling

The trial court ruled that Corporations Code section 29536 requires the prosecution to

show that "the actual victim" relied on a defendant's material misrepresentation and does not

31 permit conviction on an agency theory. The trial court then found that the testimony of

Robert's agent, Smith, was insufficient as a matter of law to establish that Robert relied on any

material misrepresentation by the defendants. The trial court reasoned that Robert did not

testify; therefore there was no evidence to show he relied on any untrue material statement by

the defendants in deciding to invest. The trial court also concluded that any misrepresentations

the defendants made to Smith were irrelevant because Robert signed an agreement with

Kingdom Advisors containing an advisement stating his investment was at risk. In dismissing

the defendants' convictions on count nine, the trial court explicitly stated it was not acting

pursuant to section 1385.18

2. The parties' contentions

The People contend the trial court erred as a matter of law by requiring the "actual

victim" to testify to prove he relied on the defendants' untrue material statement or omission.

They argue the plain language of Corporations Code section 29536 requires only that a

defendant make a materially false statement or omit to state a material fact "in connection

with" a commodities transaction, and does not require proof the victim relied on a material fact

or omission. (Cf. Lynch v. Cook (1983) 148 Cal.App.3d 1072, 1081-1082, overruled on other

grounds by In re Marriage of Arceneaux (1990) 51 Cal.3d 1130.) The People contend

materiality is an objective test involving the importance of the misrepresented or omitted

material fact to a reasonable investor, and does not require the prosecution to prove that the

18 The minute order states "Motion to dismiss count [nine] as to Mr. Romero and Mr. Martinez due to insufficiency of evidence is granted." The record transcript reflects that the trial court dismissed count nine as to "Lee, Romero and Martinez." The omission of Lee's name from the minute order appears to be clerical error. 32 actual investor considered the misrepresentation or omission to be important. (Lynch, at

pp. 1081-1082.)

Respondents contend a misrepresentation in the sale or offer of commodities must be

material to a reasonable investor in the same position as the named victim. Relying on an

affirmative claim of self-defense in a battered woman's case, they assert that an objective

standard of reasonableness refers to a " 'reasonable person in a similar situation and with

similar knowledge.' " (People v. Humphrey (1996) 13 Cal.4th 1073, 1082-1083.) Thus, the

jury was required to consider whether any misrepresentations were material to an investor who

was prepared to lose $100,000 on a speculative investment. Respondents argue there is no

evidence to show that the alleged misrepresentations were material to Robert, who was looking

for "a very aggressive instrument" and decided to make a speculative investment in the

defendants' forex trading scheme.

3. Standard of review

When an appeal presents a pure issue of law, we exercise our independent judgment,

giving no deference to the trial court's ruling. Where the facts are not disputed, the effect or

legal significance of the facts is a question of law, and we are free to draw our own

conclusions, independent of the ruling by the trial court. (Ghirardo v. Antonioli (1994) 8

Cal.4th 791, 799.)

In any case involving statutory interpretation, our fundamental task is to determine the

Legislature's intent in implementing the law. (People v. Murphy (2001) 25 Cal.4th 136, 142.)

We look first to the language of the statute, giving effect and significance to every word and

phrase. (Copley Press, Inc. v. Superior Court (2006) 39 Cal.4th 1272, 1284.) We presume the

33 Legislature intended every word, phrase and provision in a statute to have meaning. (Garcia v.

McCutchen (1997) 16 Cal.4th 469, 476.) If there is no ambiguity in the language of the statute,

the Legislature is presumed to have meant what it said, and the plain meaning of the language

governs. (Lennane v. Franchise Tax Bd. (1994) 9 Cal.4th 263, 268.)

4. Analysis

Corporations Code section 29536 states it is unlawful for any person, directly or

indirectly, in connection with the purchase or sale of, or the offer to buy or sell, a commodity,

commodity contract, or commodity option, "[t]o willfully make any false report, enter any

false record, make any untrue statement of a material fact, or omit to state a material fact in

order to make the statements made, in light of the circumstances under which they were made,

not misleading." (Id., subd. (b).) We give the words of a statute their ordinary and usual

meaning and construe them in the context of the statute as a whole. (Hassan v. Mercy

American River Hospital (2003) 31 Cal.4th 709, 715.) By its plain terms, a person violates

section 29536, subdivision (b) by making a false statement directly to the victim, or indirectly

to the victim through another party, in connection with the purchase or sale of, or the offer to

buy or sell, a commodity, commodity contract, or commodity option.

Corporations Code section 29536 does not require the fact finder to consider the

importance of the misrepresented or omitted material fact to "the actual victim." "The question

of materiality, it is universally agreed, is an objective one, involving the significance of an

omitted or misrepresented fact to a reasonable investor. Variations in the formulation of a

general test of materiality occur in the articulation of just how significant a fact must be or, put

another way, how certain it must be that the fact would affect a reasonable investor's

34 judgment." (TSC Industries, Inc. v. Northway, Inc. (1976) 426 U.S. 438, 445; Lynch v. Cook,

supra, 148 Cal.App.3d at pp. 1081-1082 [under federal securities statutes and regulations

prohibiting the issuance of materially misleading proxy statements, question of materiality is

an objective one, involving the significance of omitted or misrepresented fact to reasonable

investor]; United States v. Reyes (9th Cir. 2009) 577 F.3d 1069, 1075 [standard of materiality

is judged from the perspective of a reasonable investor and is therefore objective].)

The testimony of the "actual victim" is not required where other evidence establishes the

defendant's misleading statements or omissions and the victim's reliance on those statements.

(Butler, supra, 212 Cal.App.4th at p. 404.) In Butler, the defendant was charged with hundreds

of counts of securities fraud, tax fraud and theft in a scheme targeting elderly investors, many

of whom were dead at the time of trial or could not remember what was communicated to them

about the promissory notes they received in exchange for their money. (Id. at p. 419.) On

appeal, the defendant challenged those convictions that were primarily based on a note that

each victim signed, without evidence from the corresponding victim that specific

misrepresentations of existing fact or omissions were made in connection with the existence of

the note. Other victims testified about the promised return of 12 percent and the lack of any

disclosure about the defendant's negative history of business dealings. (Ibid.)

The reviewing court concluded that the evidence was sufficient to support the

defendant's convictions on 288 counts of securities fraud under Corporations Code section

25401 even though many of the victims did not testify. (Butler, supra, 212 Cal.App.4th at

pp. 419, 424.) There was substantial evidence to show that the defendant had promised to pay

investors 12 percent interest and return their principal, and did not make sufficient disclosures

35 to them to make his statements not misleading. The promissory notes that each victim signed

were admitted into evidence. In addition, other victims testified about the defendant's

misleading statements and lack of disclosures. Thus there was substantial evidence to show

that the defendant "consistently omitted material facts to all victims, not just those fortunate

enough to have survived to testify . . . ." (Id. at p. 424.)

Here, Smith testified Romero and Martinez represented that they could provide a

monthly return of six percent and that they currently had clients who were earning that rate.

Smith also thoroughly discussed stop-loss as risk mitigation with Lee. Smith recommended

that Robert invest with the defendants based on the protection afforded to his principal and the

very high rate of return. The defendants knew that Smith was a financial advisor who was

seeking investment opportunities for his clients. The defendants misrepresented the rates of

return, their current success trading forex, risk mitigation and principal protection―all material

misstatements. A reasonable jury could conclude there was sufficient evidence to establish

that the defendants made misleading statements and the victim relied on those statements.

(Butler, supra, 212 Cal.App.4th at p. 419.)

The trial court also erred when it concluded that any material misstatements that were

made to Smith were irrelevant because the contract Robert signed with the defendants

contained an advisory that his funds were at risk. A reasonable jury could conclude that the

contract provisions did not disclose the actual material facts of the defendants' forex trading

scheme, i.e., that the use of a stop-loss could not be effectively implemented in forex trading.

(See IFS, Inc., supra, 323 F.Supp.2d at pp. 501-502, 499-500, 503 [even if customers read,

signed, and understood the risk disclosure and customer account statements, those documents

36 do not disclose the actual material facts that the company's trading practices maximized its

commissions at the expense of clients' investments]; Clayton Brokerage Co. v. CFTC (11th

Cir.1986) 794 F.2d 573, 580 [oral representations may effectively nullify warnings in a risk

disclosure statement by discounting its general significance and relevance to the customer's

particular situation]; CFTC v. R.J. Fitzgerald & Co. (11th Cir. 2002) 310 F.3d 1321, 1329-

1330 [statements that lead a customer to believe that a particular investment is low risk are not

protected from claims of fraud simply because the broker made a pro forma disclosure of

risk].) The record clearly shows that the defendants did not inform Smith that other clients had

lost large sums of money in forex trading and that stop-loss mechanisms were not effective in

protecting principal, and instead described their stop-loss and notification mechanisms with

assurances that those mechanisms would protect the client's principal. (See Butler, supra, 212

Cal.App.4th at p. 424.)

We conclude that the trial court misinterpreted Corporations Code section 29536,

subdivision (b), and therefore abused its discretion in dismissing the defendants' convictions on

count nine for insufficiency of the evidence.

The Trial Court Erred When It Dismissed Martinez's Conviction on Count Eleven (Commodities Fraud, Smith)

In dismissing Martinez's conviction on count eleven, the trial court stated "the record

was void" of any evidence showing that Martinez made any materially false statements to

Smith. The trial court said, " . . . I've gone through the record once again, and I don't see

anything." The prosecutor then described the statements Martinez made to Smith concerning 37 stop-loss protection and rates of return. The trial court responded, "When [Smith] was crossed

on that, he backed off of that. So we're back on . . . sufficiency . . . basically, I can assess

[Smith's] credibility and what statements he made." The trial court found that Martinez could

not be convicted merely because he was present at meetings between Smith and Romero and

Lee. Smith testified Martinez did not make any misrepresentations to him. The trial court

said, "I look at the record and . . . I don't see [any material misrepresentations by Martinez]. I

just don't see it in the record. [¶] . . . [¶] So I find there is in fact insufficient evidence to

support count [eleven] as to Mr. Martinez, and that count is also dismissed."

The People contend the dismissal of count eleven was defective because trial court did

not review the record for substantial evidence to support the jury's verdict. The People also

challenge the court's finding there is no evidence in the record to show that Martinez made any

materially false statement to Brian Smith.

Martinez argues the trial court correctly applied the substantial evidence test. He

contends that not only is the evidence insufficient to show his guilt, it proves his innocence.

3. Legal principles and standard of review

Section 1385 dismissals "should not be construed as an acquittal for legal insufficiency

unless the record clearly indicates that the trial court applied the substantial evidence

standard." (Hatch, supra, 22 Cal.4th at p. 273.) "Absent such a showing, we will assume the

court did not intend to dismiss for legal insufficiency and foreclose reprosecution." (Ibid.) We

review the trial court's ruling to determine whether it is "clear enough for reviewing courts to

confidently conclude [it] viewed the evidence in the light most favorable to the prosecution and

38 found that no reasonable trier of fact could convict." (Ibid.) Absent a clear showing the trial

court applied the substantial evidence standard of review, we will assume the court did not

intend to dismiss for legal insufficiency and bar retrial. (Ibid.)

The record does not clearly show that the trial court applied the substantial evidence

standard. (Hatch, supra, 22 Cal.4th at p. 273.) To the contrary, the trial court's remarks about

its ability to determine the credibility of witnesses and its disregard of Smith's testimony on

direct in favor of his more ambiguous statements during cross-examination indicate the trial

court was reviewing the evidence as a thirteenth juror. The trial court's finding that Martinez

did not make any untrue statement of material fact to Smith is not supported by the record.

In late 2004 or early 2005, Smith met with Romero and Martinez to discuss their forex

trading program. This was after Kingdom Advisors's initial period of success. Martinez was

aware that the company's trading success, which began in approximately April 2004, lasted

only three to four months and that the initial investors ultimately lost money. Romero said

they could provide a monthly return of six percent. They had clients who were earning that

rate. Martinez echoed his remarks, telling Smith "there was profitability in their venture; they

could provide seven percent a month with a lot of safety on the principal." Romero did most of

the talking during the meeting. Martinez would echo and amplify Romero's remarks. At a

later meeting, Romero told Smith they were actively trading and it was exciting and profitable.

Martinez supported Romero's representations. Later, Smith met with Lee, Romero and

Martinez to discuss the mechanics of principal protection in greater detail. Smith did not recall

Martinez saying "much of anything" during that meeting. Robert invested $100,000 with

39 Kingdom Advisors in November 2004, which was commingled in a trading account with other

investor funds. Martinez advised Smith about the trading success or status of his accounts.

After Robert's account suffered large losses, Romero assured Smith that Robert's principal was

intact and if he kept trading, profits would resume. Smith spoke to Martinez several times

during this period. Martinez did not respond to Smith's inquiries. The record shows that

Kingdom Advisors withdrew the funds remaining in the trading account. In March 2005,

Martinez received $26,000 of those funds.

Further, a violation of Corporations Code section 29536, subdivision (b) not only occurs

when a person makes a materially false statement, it also occurs when a person "omits to state

a material fact necessary to make the statements made, in light of the circumstances under

which they were made, not misleading." The record shows that by September 2004, before he

met with Smith, Martinez knew the defendants' forex trading venture was not profitable and

other investors had lost substantial sums of money. At the first meeting with Smith, Martinez

"echoed" rather than corrected Romero's remarks about their success in forex trading, use of

stop-loss mechanisms and protection of principal. Martinez was present when Lee and

Romero made numerous material misrepresentations to Smith about their success in forex

trading and use of stop-loss mechanisms to protect the investor's principal. Martinez did not

advise Smith that earlier investors had in fact lost significant sums of money. After Smith

became aware that his accounts had suffered significant losses and Romero was encouraging

him to continue to trade, Martinez would not provide any explanation to Smith, even when

asked. Smith never learned what happened to his clients' funds. Later, Martinez advised a

40 friend to withdraw his investment in TradeCo but did not give any similar advice or

information to Smith, who was a business client.

The record contains substantial evidence to show that Martinez willfully made untrue

statements of a material fact to Smith and omitted to state material facts necessary to make his

codefendants' statements, in light of the circumstances under which they were made, not

misleading. Thus, the requirements for dismissal on legal insufficiency of the evidence are not

met. (Salgado, supra, 88 Cal.App.4th at pp. 9-10 [a dismissal will be upheld only if the record

establishes that all the conditions required under section 1385 are satisfied].) To the extent the

trial court was ruling as a thirteenth juror under section 1181(6), the record does not support its

finding that "the record was void" of any evidence to show that Martinez made any materially

false statements to Smith. Further, the trial court erred when it considered only whether

Martinez had made a material misrepresentation to Smith and did not consider whether

Martinez omitted to state a material fact necessary to make the statements made, in light of the

circumstances under which they were made, not misleading. (Corp. Code, § 29536, subd. (b).)

The Trial Court Erred When It Dismissed Lee's and Romero's Convictions on Count Thirteen (Commodities Fraud, Lutz)

1. The trial court's rulings

The trial court dismissed count thirteen for insufficiency of the evidence.19 The trial

court stated that Lutz's testimony focused on Lee's and Romero's misrepresentations

concerning the implementation of stop-loss protections. The contract between Lutz and Lee

19 The minute order states: "The Court dismisses Count [thirteen] as to all defendants due to insufficiency of the evidence as fully noted on the record." The reference to "all defendants" appears to be clerical error; Martinez was not charged with count thirteen. 41 and Romero stated the stop-loss mechanisms were to occur on a per trade basis. The trial court

reasoned that the losses could have been caused by small transactions, none of which

individually exceeded the stop-loss provision of 80 percent of value. In addition, Lee notified

Lutz when his losses were at 21 percent. At that point, Lutz and Lee renegotiated everything.

The trial court said Lutz was getting greedy. He wanted his money back. Lutz gave Lee

almost carte blanche to trade. Lutz testified the defendants lied to him about stop-loss. The

sequence of events did not bear that out. The trial court ruled there was no evidence to show

that the stop-loss provisions in the private placement memo were violated by the defendants

and therefore, the defendants did not make any false statements of material fact to Lutz.

The People contend the trial court abused its discretion when it found that the

defendants did not make any misrepresentations to Lutz. They argue the trial court

unreasonably disregarded Lutz's testimony concerning Lee's and Romero's material

misrepresentations to him and instead limited its analysis to the parties' written contract. The

People also point out the trial court made a math error when it said Lutz was notified when his

account balance reached approximately 20 percent of its last valuation.

Respondents argue the trial court dismissed count thirteen for insufficiency of the

evidence and correctly reviewed the record for substantial evidence. They acknowledge the

trial court's math calculation was erroneous.

3. Analysis

The record does not show that the trial court applied the substantial evidence standard of

review in reaching the conclusion that the evidence was insufficient to sustain the guilty

42 verdict. (Hatch, supra, 22 Cal.4th at p. 273.) Instead, the record clearly shows the trial court

disagreed with the jury's resolution of conflicting evidence and concluded that the guilty

verdicts were against the weight of the evidence. In addition, the trial court erred as a matter of

law when it concluded that the written contract was more significant than Romero's and Lee's

material misstatements to Lutz. (IFS, Inc., supra, 323 F.Supp.2d at pp. 499-503.)

The record shows that Romero and Lee told Lutz they had an established stop-loss

policy to stop trading if any account had a 20 percent loss below the most recent highest asset

valuation. Lutz believed that trading would stop and he would be notified if his accounts

dropped below 20 percent of their original amount. He believed that losing 20 percent was

"the worst case" scenario. After being informed of some initial success, Lutz was not notified

until his accounts had lost approximately 40 to 50 percent of their value. When Lee

represented that he had some safer, small trades that would bring the account balances back to

their original amounts, Lutz authorized Lee to continue trading. After Lutz repeatedly

requested an update on the value of his accounts, Lee informed Lutz that his account balance

had lost more than 30 percent of its original value. On October 12, 2005, Lutz told Lee to

close the account and return the balance of $105,378.89 to him. On November 4, Lee notified

Lutz that his account had lost approximately 90 percent of its original value. Lee and Romero

took commissions and fees from trading Lutz's funds, which are reflected in the loss of

approximately $248,300.

The record shows that Romero and Lee repeatedly informed Lutz he would not lose

more than 20 percent of the amount of his original investment and that he would be informed

when his losses reached 20 percent of his original investment amount. Lutz testified he

43 "hounded [Lee] daily" for the status of his account. Lutz relied on Lee's and Romero's

representations to him in deciding to invest. The jury could reasonably conclude that Lee and

Romero violated Corporations Code section 29536 when they told Lutz that their stop-loss

mechanism and notification procedure would protect 80 percent of his principal.

Viewed in the light most favorable to the prosecution and drawing all inferences in

favor of the jury's verdicts on count thirteen, there is substantial evidence to support Lee's and

Romero's conviction for defrauding Lutz in violation of Corporations Code section 29536,

subdivision (b). We conclude the trial court erred by not applying the substantial evidence

standard when it dismissed count thirteen for insufficiency of the evidence.

The Trial Court Erred When It Dismissed Romero's Conviction on Count Eight (Grand Theft, Robert Smith)

The trial court determined there was insufficient evidence to support count eight on a

theory of either theft-by-trick or embezzlement. The elements of theft-by-trick are: " '(1) the

obtaining of the possession of the property of another by some trick or device; (2) the intent by

the person so obtaining possession to convert it to his own use and to permanently deprive the

owner of it; and (3) that the owner, although parting with possession to such person, does not

intend to transfer his title to that person.' " (People v. Traster (2003) 111 Cal.App.4th 1377,

1390.) Obtaining the owner's consent to use the property for a specified purpose while

intending to use it in a different way constitutes fraud or deceit. (CALCRIM No. 1805.)

"Embezzlement is the fraudulent appropriation of property by a person to whom it has

been [e]ntrusted." (§ 503.) The elements of embezzlement are (1) the owner entrusted his 44 property to defendant; (2) the owner did so because he trusted the defendant; (3) the defendant

fraudulently converted that property for his own benefit; and (4) when the defendant converted

the property, he/she intended to deprive the owner of its use. (People v. Fenderson (2010) 188

Cal.App.4th 625, 636.) "[A] finding by the jury that the money was originally obtained in

good faith and that defendant later developed a design to appropriate the money for his own

use would support his conviction under the theory of embezzlement." (People v. Cuccia

(2002) 97 Cal.App.4th 785, 797.) " 'An intent to deprive the rightful owner of possession even

temporarily is sufficient and it is no defense that the perpetrator intended to restore the

property nor that the property was never "applied to the embezzler's personal use or benefit."

[Citations.]' (In re Basinger (1988) 45 Cal.3d 1348, 1363-1364.)" (People v. Nazary (2010)

191 Cal.App.4th 727, 742.)

The trial court concluded that the evidence was insufficient to sustain Romero's

conviction on count eight on a theft-by-trick theory because the evidence showed that Romero

obtained and used Robert's funds for the "specified purpose" of investing in forex and was

insufficient to show theft or deceit. The trial court rejected the People's argument that clients

transferred funds to the defendants for forex trading only because the clients accepted the

defendants' fraudulent representations concerning stop-loss, safety of principal and rates of

return. The trial court said the elements of embezzlement were not satisfied because the

People did not meet its burden to "do dollar-for-dollar tracing" to show that any of Robert's

funds were converted to Romero's personal use. All of Robert's funds may have been lost in

trading.

In dismissing count eight, the trial court said:

45 " . . . [T]he reason . . . I've tried to make a very detailed record and try to basically, you know, account for every single theory and every fact that we can, because -- and even though, frankly, I -- you know, believe that what the Court has done is factually and legally correct, appellate courts could disagree. [¶] [W]e have hung counts that were dismissed on insufficiency or legal bases, and we have counts of conviction dismissed, insufficiency or legal bases. . . .[¶] . . . [¶] . . . It seems like we need an appellate court to sort of weigh in because, if there's going to be -- not that I'm advocating [for] it -- if there's a retrial, what I'm saying is that, you know, guidance -- what does, -- 'Court you messed up. So these hung counts, no, they still exist. These counts you dismissed, you know, on your legal theory, no; we're reversing you. They exist.' And so I think everybody almost needs to know [before proceeding to a retrial] -- to me, it's like one of these cases where it's ripe for appellate review. . . . If there was really going to be a retrial, it wouldn't make any sense to do a retrial on limited counts -- [¶] . . . [¶] -- only to find that out the appellate court reversed and sent it back, and you're going to have to do another trial."

The trial court's minute order states: "The Court finds that Count [eight] is dismissed

as to Mr. Lee and Mr. Martinez due to insufficiency of the evidence as fully noted on the

record."20

The People contend the trial court did not review the record for substantial evidence.

They argue the trial court abused its discretion when it determined there was no evidence that

Robert's money had been procured by fraud or deceit because it was used for forex trading, its

intended purpose, and that embezzlement was not a viable theory of liability because the

People did not prove that any of Robert's money was converted to Romero's personal use.

20 The record shows the following exchanges between the trial court and attorneys: Romero's attorney: "So count [eight] is dismissed for lack of sufficient evidence?" Court: "Yes." Lee's attorney: "That also goes to Mr. Lee; correct?" Court: "Everybody. That was a hung count as to Mr. Lee and Mr. Martinez." The omission of Romero from the minute order appears to be clerical error. We discuss the dismissal of count eight as to Lee and Martinez in Discussion, part IV.C, post. 46 Respondents state the trial court properly dismissed count eight because the evidence

was legally insufficient to support Romero's conviction. They contend the trial court properly

defined "specified purpose" under section 487, subdivision (a). They argue there is no

evidence to show that the defendants converted any of Robert's funds for their personal use.

There was no forensic tracing of the trading account in which his funds were commingled, and

there was no evidence to show that the defendants were not legitimately entitled to the

withdrawn funds. Respondents further argue that even if the trial court erred when it

determined there was insufficient evidence to support Romero's conviction on count eight, the

guilty verdict should not be reinstated. Instead, the matter should be remanded to the trial

court to rule on the motion for a new trial under section 1181(6).

The record does not clearly show that the trial court intended to dismiss for legal

insufficiency and bar retrial. (Hatch, supra, 22 Cal.4th at p. 273.) Not only did the trial court

discuss the possibility of retrial in its discussion on count eight, it did not review the evidence

in the light most favorable to the prosecution. (Ibid.)

The record shows that in November 2004, Robert invested $100,000 with Kingdom

Advisors. His funds were commingled in a Kingdom Advisors trading account. The total

initial balance was $478,385. There were trading losses of $149,630.50. Lee withdrew the

remaining balance of $328,754.50 and transferred $53,000 to Romero's personal bank account.

Romero continued to represent to Smith that Robert's principal was intact. Kingdom Advisors

made a $5,000 payment to Robert after the balance of the account was withdrawn and trading

ceased. Those funds came from another investor's account.

47 Even were we to accept the trial court's finding that the evidence was insufficient to

show the defendants initially obtained Robert's property by fraud or deceit, the record shows

that after defendants stopped trading on the account, Romero continued to represent that

Robert's principal was intact and profits would resume. A jury could reasonably infer that had

all of Robert's funds been lost in trading, Romero would not have made any additional

payments to him. When the remaining funds were withdrawn from the trading account, the

funds were no longer being used for their specified purpose, forex trading, but instead were

transferred to the defendants and used for their business and personal expenses. A reasonable

jury could conclude that the defendants fraudulently or deceitfully obtained Robert's money

when they stopped trading, assured Smith the funds were intact and trading would again

become profitable, and withdrew the remaining funds from the account for their own use.

The trial court's imposition of a requirement of "dollar-for-dollar tracing" to prove

embezzlement is untenable. Money credits are fungible and lose their separate identity once

commingled in an account. (People v. Gbadebo-Soda (1995) 38 Cal.App.4th 160, 168.) We

do not interpret the statutory definition of embezzlement as allowing individuals to avoid

prosecution simply by commingling funds. Not only did Romero assert that Robert's principal

was intact, a jury could draw a reasonable inference that Robert was entitled to a pro rata share

of the commingled funds. We also reject respondents' argument the defendants may have been

legitimately entitled to the withdrawn funds. Based on the evidence that was presented about

the defendants' methods of operation and the tracing of the commingled funds to their personal

bank accounts, a reasonable jury could find that the defendants converted the remaining funds

to their own benefit, with intent to deprive the owner of the property.

48 The trial court's remarks about a possible retrial indicate it did not intend to acquit

Romero on count eight. Absent a clear showing of the trial court's intent, we cannot conclude

the trial court intended to dismiss the count and bar retrial. (Hatch, supra, 22 Cal.4th at p.

273.) To the extent the trial court granted a new trial on count eight, we conclude that the

court abused its discretion when it found that there was insufficient evidence to show that the

defendants did not use Robert's money for its specified purpose and that "dollar-for-dollar"

tracing of fungible monetary credit was required to prove conversion.

E

The Trial Court Erred When It Dismissed Lee's and Romero's Convictions on Count Twelve (Grand Theft, Lutz)

The trial court dismissed Lee's and Romero's convictions on count twelve, concluding

there was no evidence to show fraud or deceit because Lutz's funds were used for the specified

purpose of forex trading. (See Discussion, pt. III.D, ante.) In addition, commensurate with its

findings on commodities fraud (Lutz) (see Discussion, pt. III.B, ante), the trial court

determined that Lee and Romero did not misrepresent the stop-loss provisions to Lutz.

The minute order states: "As it pertains to count [twelve], the Court finds the plain

language in the instructions in this case as to theft. The purpose of the money was to be used

in the foreign exchange market. There was no violation loss as to the stop[-]loss provision.

The court dismisses Count [twelve], as to all defendants,[21] as fully noted on the record."

21 Martinez was not charged with count twelve. 49 2. The parties' contentions

The People argue the trial court did not review the record in the light most favorable to

the prosecution. They contend the trial court erred when it determined Lutz's funds were used

for the specified purpose of forex trading when the funds were first deposited in the trading

account. The People maintain the trial court should have reviewed the entire record to

determine whether Lee's and Romero's representations to Lutz about the manner of trading

were fraudulent or deceitful. The evidence shows that Lee and Romero enjoyed tremendous

financial benefits from trading the Lutz funds, withdrawing more than $200,000 from the

accounts in which the Lutz funds were traded. The People contend the trial court erred when it

disregarded Lutz's testimony about Lee's and Romero's misrepresentations to him, and instead

found that the stop-loss contract provisions controlled its analysis.

Respondents argue the trial court properly dismissed counts twelve on the grounds the

evidence was legally insufficient to support a guilty verdict. The evidence showed that all of

Lutz's principal was lost through forex trading or was returned to him.

The record shows the trial court did not review the evidence in the light most favorable

to the prosecution. There is substantial evidence to show that Lee and Romero knowingly

deprived Lutz of his money by false or fraudulent representation or pretense, and converted

some of his funds to their own use. (§ 487, subd. (a).) Lee and Romero persuaded Lutz that

they could manage risk through stop-loss mechanisms. They were aware that stop-loss

mechanisms were ineffective in managing risk in forex trading. Lee disregarded Lutz's

instructions to close his accounts when the balances totaled approximately $105,000 and

50 continued to trade until those accounts had lost more than 90 percent of their initial value.

Lutz's losses included commissions and fees that were paid to Lee and Romero. A reasonable

jury could conclude that Lee and Romero fraudulently set up a scheme in which they could

make money on each trade, while encouraging the investor to continue to trade as long as

possible to recoup losses, in a design to appropriate whatever funds they could for their own

use. (People v. Cuccia, supra, 97 Cal.App.4th at p. 797.) We conclude that the trial court

erred in dismissing Lee's and Romero's convictions on count twelve.

IV

DISMISSAL OF DEADLOCKED COUNTS

The Trial Court Erred When It Dismissed the Shemtov-Younessi Counts

At the close of the People's evidence, Lee and Romero made a motion to dismiss the

Shemtov-Younessi counts, arguing the People failed to show the charges were filed within the

four-year statute of limitations. At that time, the trial court denied the requests to dismiss the

counts, stating there was substantial evidence to show that the victims, as reasonable persons,

would not have discovered the criminal nature of their dealings with Lee and Romero until

they filed a complaint with the Department of Corporations, and therefore it was a question for

the jury.

During its deliberations, the jury sent a note to the trial court stating it could not reach

agreement on whether the charges were filed within the statute of limitations and asking

whether it should proceed to determine whether defendants Lee and Romero were guilty of the

51 substantive offenses. The trial court instructed the jury that if it were unable to reach a

unanimous verdict on any count involving the statute of limitations, it did not need to

deliberate on the substantive issues on those counts. The jury did not return verdicts on the

Shemtov-Younessi counts.

In discussing its dismissal of the Shemtov-Younessi counts, the trial court said it had

been concerned about the statute of limitations early in the case but had decided to let the issue

go to the jury. Now, with the jury's deadlock in mind, the trial court dismissed the Shemtov-

Younessi counts, stating it was "very clear to the Court" that the victims discovered or should

have discovered the crimes in August 2004, when they learned their investments had lost more

than half their value. The trial court explicitly stated it was not ruling under section 1385 but

"on the issue of sufficiency." The trial court's minute order states, "Motion to dismiss counts

[two], [three], [four] and [five] as to Mr. Lee, and counts [two] and [three] as to Mr. Romero is

granted due to insufficiency of the evidence."

The People contend the trial court erred when it dismissed the Shemtov-Younessi

counts. They argue the use of the phrases "from the court's perspective" and "it's very clear to

the Court" indicates that the trial court was making its own evaluation of the facts and drawing

its own factual conclusions instead of examining the evidence in the light most favorable to the

prosecution.

52 Respondents contend the trial court dismissed counts two and three22 for legal

insufficiency and therefore double jeopardy prohibits appellate review. They argue the

dismissal met the requirements of section 1385 and the trial court's colloquial language does

not show the court reweighed the evidence as a thirteenth juror. Respondents acknowledge the

trial court misunderstood its authority under section 1385 to dismiss for legal insufficiency and

instead believed section 1385 applied only when the court made findings "in the furtherance of

justice" and that a dismissal for insufficiency was made under separate authority.

If a defendant seeks termination of the proceedings against him on a basis unrelated to

his factual guilt or innocence, double jeopardy does not bar appellate review. (Evans, supra,

133 S.Ct. at p. 1075, citing Scott, supra, 437 U.S. at p. 99.) The issue whether the Shemtov-

Younessi charges were filed within the statute of limitations does not go to the factual guilt or

innocence of the defendants. A defendant is acquitted only when the judge's ruling actually

represents a resolution in defendant's favor, correct or not, of some or all of the factual

elements of the offense charged. (Scott, supra, 437 U.S. at p. 97.) Thus double jeopardy does

not bar appellate review of the Shemtov-Younessi counts. (Evans, supra, 133 S.Ct. at p.

1075.)

The record does not clearly indicate the trial court applied the substantial evidence

standard. (Hatch, supra, 22 Cal.4th at p. 273.) Absent such a showing, we will assume the

trial court did not intend to dismiss for insufficiency of the evidence. (Ibid.) Viewing the

record in the light most favorable to the prosecution, we conclude there is substantial evidence

22 Romero and Martinez were not charged with counts four and five. However, our analysis of counts two and three also applies to counts four and five. 53 to support the People's theory that Shemtov and Younessi did not learn they were victims of

commodities fraud and grand theft until they filed a complaint with the CDC in May 2005.

(See § 803, subd. (c) [statute of limitations is tolled until the discovery of an offense in which

fraud is a material element].) "[T]he discovery of a loss by the victim alone is insufficient to

trigger the running of the limitations period: 'Literally, . . . discovery of a loss, without

discovery of a criminal agency, is not enough.' [Citation.]" (People v. Soni (2005) 134

Cal.App.4th 1510, 1518.)

When Shemtov and Younessi first learned of the losses, they sought explanations from

Lee and Romero. Lee said the losses were the result of a bad decision on one trade. Romero

promised to reimburse Shemtov and sent $2,000 to him. Shemtov did not take any action until

Romero and Lee refused to compensate him. Lee told Younessi that the loss was "one of those

things that happens once in a century." Younessi believed he had made a stupid business

decision. He did not view himself as the victim of a crime.

In Soni, a division of this court held that where the victim pursued explanation for

financial discrepancies that came to her attention over the course of several months, the

discovery of the crime occurred on the date she released the information to the authorities.

(People v. Soni, supra, 134 Cal.App.4th at p. 1518.) Similarly, a jury could reasonably

conclude that Shemtov and Younessi sought explanations from Romero and Lee about the

nature of their losses and were initially misled, and did not discover they had been the victims

of crimes until they filed a complaint with the CDC. We conclude that the trial court erred

when it dismissed the Shemtov-Younessi counts for insufficiency of the evidence.

54 B

The Trial Court Abused Its Discretion When It Dismissed Count One (Conspiracy) and Count Ten (Grand Theft, Smith) as to Martinez under Section 1385

Martinez asked the trial court to dismiss the deadlocked counts against him as against

the weight of the evidence and because it was "the fair thing to [do]" in view of his background

and history. The trial court found that Martinez was a credible witness. Unlike Lee and

Romero, he did not profit from the scheme. The court adopted "all the arguments made by

[Martinez]" and dismissed counts one and ten on the sufficiency of the evidence and in the best

interests of justice in view of Martinez's circumstances and the facts of the case. The minute

order states, "As to Defendant Martinez: the Court DISMISSES Count [one] and [ten] due to

insufficiency of the evidence."

The People argue that although the trial court briefly referred to section 1385 in its

remarks, the minute order does not reference section 1385 and the dismissal order does not

comply with statutory requirements. They further contend the trial court did not apply the

substantial evidence standard of review and the dismissals of counts one and ten were based on

an erroneous sufficiency of the evidence analysis. Alternatively, the People contend the trial

court abused its discretion when it dismissed counts one and ten under section 1385 in the

interests of justice.

Martinez argues the record transcript clearly shows that the trial court dismissed counts

one and ten under section 1385 in the interests of justice and for legal insufficiency of the

evidence. Martinez states the trial court assessed his credibility and determined his testimony 55 was truthful. He argues this court must defer to the trial court's credibility determinations

when supported by substantial evidence.

The reasons for a dismissal under section 1385 must be set forth in a minute order.

(§ 1385, subd. (a); People v. Bonnetta (2009) 46 Cal.4th 143, 146 [an order of dismissal is

ineffective in the absence of a written statement of reasons entered upon the minutes]; People

v. Superior Court (Meraz) (2008) 163 Cal.App.4th 28, 54 [mandatory requirements have not

been met if valid reasons for dismissal are expressed in the reporter's transcript but do not

appear in the minutes].) "The trial court's minute order granting a section 1385 motion must

contain a written specification of reasons that sets out the factual basis for the trial court's

conclusions. [Citation.] The main purpose of this requirement is to restrain judicial discretion

and curb arbitrary action for undisclosed motives and reasons. The written specification allows

us to determine whether the trial court's stated reasons justified its exercise of discretion."

(People v. Thorbourn (2004) 121 Cal.App.4th 1083, 1088 (Thorbourn).) Review of an order

of dismissal under section 1385 is limited to the reasons stated by the trial court. (Thorbourn,

at p. 1088.)

If the trial court has dismissed a conviction for legal insufficiency of the evidence, the

reviewing court engages in precisely the same task as the trial court and determines, without

reweighing the evidence, whether there was sufficient evidence to permit a rational jury to

convict. (Salgado, supra, 88 Cal.App.4th at p. 15.) On a dismissal in furtherance of justice,

we review the trial court's ruling for dismissal for abuse of discretion. (Polanski v. Superior

Court (2009) 180 Cal.App.4th 507, 537.) " ' "Discretion is compatible only with decisions

56 'controlled by sound principles of law, . . . free from partiality, not swayed by sympathy or

warped by prejudice . . . .' [Citation.]" [Citation.] "[A]ll exercises of legal discretion must be

grounded in reasoned judgment and guided by legal principles and policies appropriate to the

particular matter at issue." ' " (Ibid., quoting People v. Superior Court (Alvarez) (1997) 14

Cal.4th 968, 977 (Alvarez).)

The trial court entered only a summary conclusion for the dismissal in the minutes, and

did not enter the reasons as required by section section 1385, subdivision (a). (Thorbourn,

supra, 121 Cal.App.4th at p. 1088.) Our review is limited to the reason stated in the minute

order. (Ibid.) The minute order states the trial court was dismissing counts one and ten for

insufficiency of the evidence.

The record does not clearly indicate the court reviewed the record in the light most

favorable to the prosecution. (Hatch, supra, 22 Cal.4th at p. 273.) Instead, the trial court

based the findings on its own determination of credibility. It also found that Martinez's

arguments were persuasive and adopted them. This indicates the trial court was acting as a

thirteenth juror. Dismissals should not be construed as an acquittal for legal insufficiency

unless the record clearly indicates the trial court applied the substantial evidence standard.

(Ibid.) We reject Martinez's claim the trial court complied with the statutory requirements for

dismissal of counts one and ten under section 1385.

Further, to the extent a defect in the form of the dismissal order does not prevent an

appellate court from reviewing the trial court's exercise of its duty to protect the fundamental

rights of the accused (Fosselman, supra, 33 Cal.3d at p. 582), we review the trial court's ruling

57 for dismissal in furtherance of justice for abuse of discretion (Polanski v. Superior Court,

supra, 180 Cal.App.4th at p. 537). The record shows the trial court was impermissibly

motivated by sympathy for Martinez. (Alvarez, supra, 14 Cal.4th at p. 977.) The fact that

Martinez did not benefit from the forex trading scheme to the same extent as Lee or Romero

does not absolve him of his actions in furtherance of the scheme. The record shows that

Martinez believed he would become Romero's partner in Kingdom Advisors. A reasonable

jury could believe Martinez was seeking future gain. With respect to count ten, the record

shows that when Martinez and Romero met with Smith about investing in TradeCo, Martinez

said they could provide seven percent interest a month while maintaining safety on the

principal. Only a portion of Smith's funds were invested in TradeCo. Some of the funds were

used to pay a portion of a settlement in a civil lawsuit in which both Romero and Martinez

were named defendants.

The record contains evidence from which a jury could reasonably conclude that

Martinez was guilty of conspiracy to defraud another of property and grand theft. (§§ 182,

subd. (a)(4), 487, subd. (a).) The trial court dismissed counts one and ten as to Martinez

because it concluded that Martinez did not benefit from the forex trading scheme to the same

extent as his codefendants. (Alvarez, supra, 14 Cal.4th at p. 977 [discretion is compatible only

with decisions that are controlled by sound principles of law, not swayed by sympathy].) Thus,

the trial court's exercise of legal discretion under section 1385 was not grounded in reasoned

judgment and guided by legal principles and policies appropriate to the particular matter at

issue. (Alvarez, at p. 977.) We conclude the trial court abused its discretion in dismissing

counts one and ten under section 1385.

58 C

The Trial Court Erred in Dismissing Lee's and Martinez's Charges on Count Eight (Grand Theft, Robert)

The trial court's findings of law and fact with respect to count eight are fully detailed in

Discussion, part III.D, ante. With respect to Lee and Martinez, the trial court dismissed count

eight "due to insufficiency of evidence as fully noted on the record." The trial court noted that

it found that Martinez was a credible witness and he was "nothing more than somebody whose

name was used by Romero," and whose name was on the forex trading documents only

because Romero told him to sign the paperwork.

The trial court said it would like some guidance from an appellate court on its rulings

before going forward with any retrial on the deadlocked counts because "the counts that the

jury hung on doesn't seem, to be honest with the parties, frankly, to be a good use of taxpayer

dollars to go forward on these hung jury counts, and I'm not so sure I would allow it under

[section] 1385. I'm not going to necessarily do that right now . . . because, you know, it could

end up that . . . the Court gets reversed by the Court of Appeals, and other stuff comes back,

and we're back reassessing in this."

The People argue the trial court erred when it dismissed count eight as to Lee and

Martinez because the trial court did not review the record for substantial evidence. In addition,

they contend the trial court's remarks concerning appellate review and retrial conclusively

show that the court was not ordering an acquittal on the deadlocked count.

59 Martinez replies the trial court correctly determined there was not substantial evidence

to support a finding that Martinez made any material misrepresentations to Robert's agent,

Smith. He further contends this court must defer to the trial court's finding that Martinez's

presentation of himself as an innocent office worker was credible.

The record does not clearly indicate that the trial court met the requirements of section

1385 when dismissing count eight as to Martinez and Lee. The trial court's statements that it

found Martinez to be a credible witness indicate it was viewing the evidence as a thirteenth

juror and did not apply the substantial evidence standard of review. (Hatch, supra, 22 Cal.4th

at p. 273 [court must review the evidence in the light most favorable to the prosecution].)

Further, the trial court's explicit refusal to dismiss count eight as to either Lee or Martinez

under section 1385 and its acknowledgment of a possible retrial strongly indicates that the trial

court did not intend to invoke principles of double jeopardy and bar retrial. (Hatch, at p. 271.)

We conclude that the trial court erred in dismissing count eight as to Lee and Martinez.

DISPOSITION

The orders are reversed and the case is remanded to superior court with instructions to

reinstate the verdicts rendered by the jury and sentence the defendants accordingly. The

defendants may be retried on the deadlocked counts.23 On the request of the People, and in

the interests of justice, we order that the proceedings on remand be heard before a trial judge

23 The jury convicted Lee on counts one, nine, eleven, twelve and thirteen. Lee may be retried on counts two, three, four, five, eight and ten. The jury convicted Romero on counts one, eight, nine, ten, eleven, twelve and thirteen. Romero may be retried on counts two and three. The jury convicted Martinez on counts nine and eleven; he may be retried on counts one, eight and ten. 60 other than the judge whose orders were reviewed on appeal. (Code Civ. Proc., § 170.1, subd.

(c); People v. Dutra (2006) 145 Cal.App.4th 1359, 1369.)

O'ROURKE, J. WE CONCUR:

MCCONNELL, P. J.

AARON, J.