State v. Hannan

2020 Ohio 755

• Court: Ohio Court of Appeals
• Decided: March 2, 2020
• Docket: 2019CA00037
• Status: Published

Opinion

[Cite as State v. Hannan, 2020-Ohio-755.]

COURT OF APPEALS STARK COUNTY, OHIO FIFTH APPELLATE DISTRICT

STATE OF OHIO JUDGES: Hon. William B. Hoffman, P.J Plaintiff-Appellee Hon. W. Scott Gwin, J. Hon. Earle E. Wise, Jr., J. -vs- Case No. 2019CA00037 KIM HANNAN

Defendant-Appellant O P I N IO N

CHARACTER OF PROCEEDINGS: Appeal from the Stark County Court of Common Pleas, Case No. 2018CR0520

JUDGMENT: Affirmed

DATE OF JUDGMENT ENTRY: March 2, 2020

APPEARANCES:

For Plaintiff-Appellee For Defendant-Appellant

JOHN D. FERRERO GEORGE URBAN Prosecuting Attorney 116 Cleveland Avenue, N.W. Stark County, Ohio 808 Courtyard Centre Canton, Ohio 44702 RONALD MARK CALDWELL Assistant Prosecuting Attorney Appellate Section 110 Central Plaza, South – Suite 510 Canton, Ohio 44702-1413 Stark County, Case No. 2019CA00037 2

Hoffman, P.J. {¶1} Appellant Kim Hannan appeals the judgment entered by the Stark County

Common Pleas Court convicting him of 51 counts of securities fraud (R.C. 1707.44(B)(4),

(G),(M)(1)(a),(b)), aggravated theft (R.C. 2913.02(A)(1),(2),(3)) and theft from a person in

a protected class (R.C. 2913.02(A)(1),(2),(3)), and sentencing him to an aggregate term

of incarceration of twenty years. Appellee is the state of Ohio.

STATEMENT OF THE FACTS AND CASE

{¶2} Appellant was a registered financial advisor who had worked for several

financial firms. He acquired clients from his employment, and after leaving the firms he

worked for, he became desperate for money. Appellant incurred debt due to personal

expenses, gambling, and spousal support obligations, and began to look for an alternate

method to make money. He started a dry cleaning business, followed by a doggie

daycare business, and finally a company called HR Resources. Beginning in 2014, he

looked to his clients to provide investment funds for his businesses.

{¶3} Buddy and Gloria Scott were two of Appellant’s clients from his employment

with investment firms. He asked the Scotts to invest in his dry cleaning business. They

initially gave Appellant $50,000, and Appellant gave them a cognovit note for $75,000.

Over a period of time, the Scotts gave Appellant $805,000 in six transactions, secured by

Appellant’s cognovit notes. They saw the money as an investment and not a loan.

Appellant continued to tell the Scotts the business was doing well, when in actuality the

business was losing money, he was unable to make payroll, and debt was mounting.

{¶4} Michael and Nanette Maletich also invested money in Appellant’s

businesses at his urging. They gave Appellant $168,225 over six transactions, secured Stark County, Case No. 2019CA00037 3

by cognovit notes. Appellant told them only good news about the businesses, and sent

them monthly return checks on their investments.

{¶5} Nanette Maletich’s sister, Renee Leimgruber, was approached by Appellant

to invest in the doggie daycare business. She invested $30,000, secured by a cognovit

note. Appellant paid her $637.41 via three checks.

{¶6} Appellant approached John and Mary Ruth to invest in his dry cleaning

business, telling them they could receive a higher rate of return than by staying with their

investments previously made through his firm. They gave him $125,000 secured by a

cognovit note. He later convinced them to give him another $422,000. He told them the

dry cleaning business was doing well, and he expected $700,000 in profits, to encourage

further investment in the business.

{¶7} Appellant also convinced David and Anne Heinzman to invest $145,000

over four transfers, all secured by cognovit notes. He told them they could do better

investing in his businesses than by staying with their stock investments. They received

some payments from Appellant, which gave credence to Appellant’s representations the

businesses were doing well.

{¶8} In October, 2017, Appellant sent letters to all nine clients terminating the

relationships and admitting he could not pay them back. Appellant defrauded these

clients out of a total of $1,645,255.00

{¶9} Meanwhile, Appellant met Pamela Crawford via an online dating site, and

dated her from 2015, to 2017. Appellant told Crawford about his financial advising

business, as well as his dry cleaning business. He convinced Crawford to quit her job

and work at the dry cleaning business. She could tell something was wrong and the Stark County, Case No. 2019CA00037 4

business was not doing well, and she quit working for Appellant after several weeks.

However, she continued to date Appellant. The dates included regular expensive dinners

out and trips to a casino in Cleveland, where they were comped rooms and the pit boss

called Appellant by his first name. Knowing Appellant was soliciting investments from

clients for his businesses, she feared the clients were not going to get their money back.

Crawford made an anonymous complaint with the Securities and Exchange Commission

(SEC) about Appellant’s activities.

{¶10} As a result of Crawford’s tip, Ohio authorities began to investigate

Appellant’s activities. Leo Fernandez, a fraud investigator with the Ohio Auditor’s Office,

and Janice Hitzeman, an Attorney Inspector with the Ohio Department of Commerce,

began the investigation. A search warrant was executed on Appellant’s businesses, and

bank and financial records were obtained through subpoenas. Fernandez determined

Appellant received over $1.6 million from the nine targeted investors, the businesses were

failures, and Appellant used some of the investment money to pay for gambling, spousal

support, and other personal expenses. In addition, Appellant used some of the money

from the nine investors to pay the other investors a return on their investments. The audit

revealed Appellant commingled personal and business expenses. When Fernandez

interviewed Appellant, Appellant stated he wasn’t making enough money in his

investment advisory business, so he reached out to clients to invest in his other

businesses. Appellant claimed all the invested money had been spent on operating

expenses for the businesses.

{¶11} At a later investigative interview, Appellant admitted his transactions were

securities violations. For purposes of the Ohio Securities Act, both a loan and an Stark County, Case No. 2019CA00037 5

investment are defined as a security, and a cognovit note is also a security. While

investments and loans are not guaranteed to be profitable, the decision to make an

investment or loan must be done knowingly, with full disclosure of material information.

Hitzeman concluded from her investigation Appellant deceived his nine investors into

giving him money, the transfers constituted sales, and Appellant made false

representations in order to obtain their money. She further concluded Appellant should

have put all of the investment money into the businesses instead of using it for personal

expenses.

{¶12} In 2018, the Stark County Grand Jury charged Appellant with 53 counts of

state securities fraud, one count of theft from a person in a protected class, and one count

of aggravated theft.

{¶13} Before trial, Appellant waived his right to counsel and proceeded pro se.

The State offered Appellant a plea deal, which he rejected. The case proceeded to jury

trial in the Stark County Common Pleas Court. On the second day of trial, Appellant

indicated he wished to plead guilty. After reviewing the plea forms, he recanted and opted

to proceed to trial. He also requested his standby counsel represent him. The trial court

declared a mistrial and referred Appellant for a competency evaluation.

{¶14} Appellant was found competent to stand trial. Before the second jury trial,

the State dismissed two counts of securities fraud. The case proceeded to trial on the

remaining counts. Appellant was convicted of the remaining 51 counts of securities fraud,

as well as the aggravated theft and theft counts. He was sentenced to an aggregate term

of incarceration of 20 years and ordered to pay restitution in the amount of $1,645,255.00. Stark County, Case No. 2019CA00037 6

{¶15} It is from the February 14, 2019, judgment of conviction and sentence

Appellant prosecutes this appeal, assigning as error:

I. APPELLANT’S CONVICTIONS WERE AGAINST THE

SUFFICIENCY AND/OR MANIFEST WEIGHT OF THE EVIDENCE.

II. THE TRIAL COURT ERRED BY OVERRULING APPELLANT’S

OBJECTION AND PERMITTING JIM LUPICA TO TESTIFY ABOUT

FIDUCIARY DUTY.

I.

{¶16} In his first assignment of error, Appellant argues the judgment is against the

sufficiency and manifest weight of the evidence because the State did not prove he

intended to defraud any of his clients.

{¶17} In determining whether a verdict is against the manifest weight of the

evidence, the appellate court acts as a thirteenth juror and “in reviewing the entire record,

weighs the evidence and all reasonable inferences, considers the credibility of witnesses,

and determines whether in resolving conflicts in evidence the jury ‘clearly lost its way and

created such a manifest miscarriage of justice that the conviction must be reversed and

a new trial ordered.’” State v. Thompkins, 78 Ohio St. 3d 380, 387, 1997-Ohio-52, 678

N.E.2d 541, quoting State v. Martin, 20 Ohio App. 3d 172, 175, 485 N.E.2d 717 (1983).

{¶18} An appellate court's function when reviewing the sufficiency of the evidence

is to determine whether, after viewing the evidence in a light most favorable to the

prosecution, any rational trier of fact could have found the essential elements of the crime Stark County, Case No. 2019CA00037 7

proven beyond a reasonable doubt. State v. Jenks, 61 Ohio St. 3d 259, 574 N.E.2d 492,

paragraph two of the syllabus (1991).

{¶19} Appellant was convicted of theft and aggravated theft in violation of R.C.

2913.02(A)(1), (2), and (3), which provides:

(A) No person, with purpose to deprive the owner of property or

services, shall knowingly obtain or exert control over either the property or

services in any of the following ways:

(1) Without the consent of the owner or person authorized to give

consent;

(2) Beyond the scope of the express or implied consent of the owner

or person authorized to give consent;

(3) By deception.

{¶20} He was convicted of 51 counts of securities fraud in violation of the following

sections of R.C. 1707.44:

(B) No person shall knowingly make or cause to be made any false

representation concerning a material and relevant fact, in any oral

statement or in any prospectus, circular, description, application, or written

statement, for any of the following purposes:

(4) Selling any securities in this state. Stark County, Case No. 2019CA00037 8

(G) No person in purchasing or selling securities shall knowingly

engage in any act or practice that is, in this chapter, declared illegal, defined

as fraudulent, or prohibited.

(M)(1) No investment adviser or investment adviser representative

shall do any of the following:

(a) Employ any device, scheme, or artifice to defraud any person;

(b) Engage in any act, practice, or course of business that operates

or would operate as a fraud or deceit upon any person.

{¶21} Appellant argues the State did not present any evidence he made false

representations in order to obtain the money of his nine clients. He asserts he was not

trying to mislead his clients, and no one testified to specific fraudulent acts. He argues

misfortune does not constitute fraud.

{¶22} The testimony demonstrated Appellant persuaded his clients investing in

his businesses would be more profitable than a stock portfolio. He continued to solicit

more money from his clients, telling them the businesses were doing well and making a

profit, when in actuality, the businesses were losing money. He buttressed his claims the

businesses were doing well by paying the clients a return on their investment, which he

took from other investors rather than from the profits of the businesses. John Ruth

testified Appellant told him specifically the dry cleaning business was projected to make

$700,000 in profit one year.

{¶23} The State presented evidence instead of using the money to invest in the

businesses, he used the money to support a lavish lifestyle and pay his personal debts, Stark County, Case No. 2019CA00037 9

which alarmed Crawford (his paramour) to the extent she reported his activities to the

SEC. The evidence reflected Appellant did not tell the investors he was using the money

on personal expenses and to pay false “returns” to other investors, but rather they

believed the money was invested in his businesses.

{¶24} The State presented evidence, if believed by the jury, to support a finding

Appellant intentionally made false representations to obtain money from his nine clients.

{¶25} While Appellant argues generally the witnesses were not credible and the

investigation into his activities was not thorough, we find the jury did not lose its way in

believing the testimony of Appellant’s clients and the investigators, and the verdict is not

against the manifest weight of the evidence.

{¶26} The first assignment of error is overruled.

II.

{¶27} In his second assignment of error, Appellant argues the court erred in

allowing Jim Lupica to testify concerning the concept of “fiduciary duty,” as the concept

was not relevant to the case and created a danger the jury convicted Appellant for

breaching a duty owed to his clients rather than for violation of statute.

{¶28} Jim Lupica testified about his working relationship with Appellant while

Appellant was employed at Stratos Wealth Partners. Appellant worked there for about a

year, during which time Lupica formed a partnership with Appellant’s investment

business. Lupica testified brokers and advisors owe their clients a fiduciary duty when

managing their money. He defined fiduciary duty as “putting the client first; [y]ou are

subordinated to that client; you are working for that client and you owe them full loyalty,

full disclosure of all investment advice that you’re giving.” Tr. (II) 188. Lupica further Stark County, Case No. 2019CA00037 10

testified to tell the client only the good aspects of a product is a violation of fiduciary duty.

Appellant’s objection to Lupica’s testimony was overruled.

{¶29} “[A] trial court is vested with broad discretion in determining the admissibility

of evidence in any particular case, so long as such discretion is exercised in line with the

rules of procedure and evidence.” Rigby v. Lake Cty., 58 Ohio St. 3d 269, 271, 569

N.E.2d 1056 (1991).

{¶30} Evid. R. 401 defines relevant evidence as “evidence having any tendency

to make the existence of any fact that is of consequence to the determination of the action

more probable or less probable than it would be without the evidence.” Evid. R. 402

provides:

All relevant evidence is admissible, except as otherwise provided by

the Constitution of the United States, by the Constitution of the State of

Ohio, by statute enacted by the General Assembly not in conflict with a rule

of the Supreme Court of Ohio, by these rules, or by other rules prescribed

by the Supreme Court of Ohio. Evidence which is not relevant is not

admissible.

{¶31} As Appellant argued in his first assignment of error, the State was required

to prove Appellant defrauded his clients. The concept of fraud is intertwined with

Appellant’s fiduciary duties owed his clients in this case. The fact he not only lied to his

clients about how the businesses were doing but also failed to tell them both good and

bad facts material to their investment decisions relates directly to both the fiduciary duties Stark County, Case No. 2019CA00037 11

owed his clients and his intent to defraud them. Appellant’s violation of the fiduciary duties

he owed his clients, duties he was aware of as a license financial advisor, reflects upon

his intent when he persuaded his clients to give him money for his businesses. We find

the concept of fiduciary duty was relevant in the instant case, and the trial court did not

err in admitting Lupica’s testimony over Appellant’s objection.

{¶32} The second assignment of error is overruled.

{¶33} The judgment of the Stark County Common Pleas Court is affirmed.

By: Hoffman, P.J. Gwin, J. and Wise, Earle J. concur