v. Baker

     The summaries of the Colorado Court of Appeals published opinions
  constitute no part of the opinion of the division but have been prepared by
  the division for the convenience of the reader. The summaries may not be
    cited or relied upon as they are not the official language of the division.
  Any discrepancy between the language in the summary and in the opinion
           should be resolved in favor of the language in the opinion.


                                                                 SUMMARY
                                                           November 7, 2019

                               

No. 16CA1545, People v. Baker — Crimes — Securities — Fraud
and Other Prohibited Conduct; Evidence — Opinions and
Expert Testimony — Testimony by Experts — Opinion on
Ultimate Issue

     A division of the Colorado Court of Appeals holds that certain

expert testimony by the Deputy Commissioner for the Colorado

Division of Securities in this securities fraud case improperly

usurped the jury’s role. Specifically, the Deputy Commissioner

improperly told the jury what the defendant had and had not said,

and had and had not done, not in hypothetical terms but in terms

suggesting certainty based on credibility determinations and

assessment of evidence, some of which had not been presented to

the jury. The expert’s testimony further conveyed the impression

that she had determined that the defendant was guilty. Because

the erroneous admission of this testimony was not harmless, the
division reverses the defendant’s convictions for securities fraud

and theft.
COLORADO COURT OF APPEALS                                        

Court of Appeals No. 16CA1545
Jefferson County District Court No. 14CR2062
Honorable Philip J. McNulty, Judge


The People of the State of Colorado,

Plaintiff-Appellee,

v.

Karl Christopher Baker,

Defendant-Appellant.


             JUDGMENT AFFIRMED IN PART, REVERSED IN PART,
                 AND CASE REMANDED WITH DIRECTIONS

                                  Division VII
                          Opinion by JUDGE J. JONES
                           Fox and Tow, JJ., concur

                          Announced November 7, 2019


Philip J. Weiser, Attorney General, Brittany L. Limes, Assistant Attorney
General, Denver, Colorado, for Plaintiff-Appellee

Megan A. Ring, Colorado State Public Defender, Rachel K. Mercer, Deputy State
Public Defender, Denver, Colorado, for Defendant-Appellant
¶1    Defendant, Karl Christopher Baker, appeals the judgment of

 conviction entered on jury verdicts finding him guilty of three

 counts of securities fraud (fraud in the sale of a security); three

 counts of theft ($20,000 or more); and one count of filing a false tax

 return. Because we conclude that the prosecution’s expert witness

 on securities impermissibly testified to conclusions solely within the

 jury’s province, we reverse Baker’s securities fraud and theft

 convictions and remand for a new trial on those counts. We affirm

 the conviction for filing a false tax return.

                            I.    Background

¶2    Baker and his business partner formed Aviara Capital

 Partners, LLC (Aviara), in late 2009, planning to buy a controlling

 interest in a bank, purchase the bank’s distressed assets (mostly

 loans secured by real estate), and then sell those assets at a profit

 when the real estate market improved.

¶3    To fund this plan, Aviara needed investors. Baker sought out

 potential investors, including four people named as victims in this

 case: Donna and Lyal Taylor, Dr. Alan Ng, and Stanley Douglas.

 According to the indictment, each chose to invest in Aviara after

 Baker allegedly told them the following:


                                     1
1. Their investments would go toward buying a distressed

  bank.

2. “Class A” investors — larger, corporate investors — were

  already lined up.

3. The amount of their investment that they could lose was

  capped. (The Taylors alleged that Baker said they could

  lose $30,000 at most. Douglas said that he was told he

  could lose no more than 25% of his investment. Ng

  understood that, in a worst case scenario, he wouldn’t

  make a profit.)

4. Baker wouldn’t take a salary until Aviara was up and

  running or profitable.

5. Aviara would hold their money in escrow.

6. They would get their principal back quickly (within a year

  according to Ng and Douglas; within three to four months

  according to the Taylors).




                               2
 Donna Taylor also alleged that Baker told her his mother was going

 to invest in Aviara. 1

¶4    After the People indicated that Lillian Alves, the Deputy

 Commissioner for the Colorado Division of Securities, would testify

 at trial, defense counsel filed a motion in limine to exclude her

 testimony, arguing (among other things) that her proposed

 testimony would usurp the jury’s role as fact finder, would include

 determinations the jurors could make themselves, wouldn’t be

 helpful, would misstate the law, and would serve “only to bolster

 and re-state the charges, which of course are not evidence.” The

 district court denied that motion.

¶5    At trial, each investor testified that Baker had told them that

 larger investors were about to jump in, there would be a limit on

 their potential losses, Baker wasn’t taking a salary, and Aviara

 would hold their investments in escrow. The Taylors and Douglas

 also testified that Baker told them that all, or at least some, of their



 1Donna and Lyal Taylor testified that Baker also told them that his
 mother was going to invest in Aviara. But Lyal later clarified on
 cross-examination that he understood the statement as a
 hypothetical — that Baker “would even let [his] own mother invest,”
 not that she was actually going to do so.

                                      3
 investment would go directly toward purchasing the bank. And

 both the Taylors and Ng testified that Baker told them they would

 get their principal back quickly.

¶6    After the court qualified Alves as an expert in securities law,

 she testified about the Colorado Securities Act and its registration

 requirements, that securities law requires “full and fair disclosure,”

 that Baker had an obligation to truthfully disclose material facts,

 and that the shares of Aviara that Baker sold were securities. She

 also testified at length about what statements or omissions Baker

 had made to the investors, and whether those statements and

 omissions were material. And she concluded that the things Baker

 said would happen never occurred. Defense counsel repeatedly

 objected to this testimony.

¶7    Baker didn’t testify, but defense counsel vigorously attacked

 the investors’ credibility, arguing that the statements attributed to

 Baker didn’t make any sense, particularly in light of the

 comprehensive documents Baker had provided to the investors,

 which didn’t include such statements.

¶8    A jury found Baker guilty of the charges noted above, but

 acquitted him of one count of securities fraud.


                                     4
                             II.   Discussion

¶9     Baker contends that the district court erred by (1) allowing

  Alves’s testimony; and (2) allowing the prosecution to present

  evidence that he falsely told Donna Taylor that Aviara would

  register the securities it was selling, when the indictment didn’t

  contain any such allegation. He also contends that, in the event we

  affirm, his theft conviction for taking $50,000 from Ng should be

  reduced from a class 3 felony to a class 4 felony.

¶ 10   We agree with Baker that some of Alves’s testimony crossed

  the line between permissible and impermissible expert testimony.

  Because the court’s error in allowing the impermissible testimony

  wasn’t harmless, we reverse Baker’s securities fraud and theft

  convictions. But we conclude that Alves’s improper testimony

  didn’t taint the conviction for filing a false tax return. Given the

  possibility that the issue may arise in the event of a new trial, we

  also briefly address Baker’s contention that evidence that he told

  Donna Taylor he would register the securities impermissibly varied

  from the charges in the indictment.




                                     5
                      A.        Alves’s Expert Testimony

¶ 11   Baker challenges Alves’s expert testimony on eight related and

  largely overlapping grounds, including that her testimony wasn’t

  helpful, was speculative, misstated the law, and usurped the

  functions of the judge and jury. We agree with Baker that parts of

  Alves’s testimony usurped the jury’s role.

                           1.     Standard of Review

¶ 12   A trial court has broad discretion to determine the

  admissibility of expert testimony, and we won’t overturn its rulings

  allowing such testimony absent a showing of an abuse of that

  discretion. People v. Pahl, 

 (Colo. App. 2006). A

  trial court abuses its discretion if its decision is manifestly

  arbitrary, unreasonable, or unfair, or if it misapprehends or

  misapplies the law. People v. Thompson, 

.

¶ 13   Baker preserved his argument that Alves’s testimony usurped

  the function of the jury. Because this argument is preserved, we

  will determine whether any error requires reversal by applying the

  harmless error test. Hagos v. People, 

, ¶ 12. Under

  that test, we reverse only if the error “substantially influenced the

  verdict or affected the fairness of the trial proceedings.” Id. (quoting


                                        6
Tevlin v. People, 

 (Colo. 1986)). To determine if

that occurred, we look to whether the People have shown that there

is “no reasonable possibility that [the error] contributed to the

defendant’s conviction.” Pernell v. People, 

; see

James v. People, 

 (the prosecution must show

that any error was harmless). But see People v. Rock, 

 (articulating the harmless error test as whether “there is a

reasonably probability that it contributed to the defendant’s

conviction”) (emphasis added); People v. Roman, 

, ¶ 13

n.1 (noting that the Colorado Supreme Court has used “reasonable

probability” and “reasonable possibility” interchangeably to describe

the harmless error test). 2




2 In light of the fact the supreme court recently held that the People
bear the burden of showing that a trial error was harmless, James
v. People, 

, the harmless error and
constitutional harmless error tests now appear identical in
Colorado. See Hagos v. People, 

 (a constitutional
error is harmless beyond a reasonable doubt if there is no
“reasonable possibility that [it] might have contributed to the
conviction” (quoting Chapman v. California, 

(1967))). This seems counterintuitive: shouldn’t it be easier for a
defendant to obtain reversal based on a violation of his
constitutional rights than for a garden-variety trial error? But that
is not for us to say; we must simply apply supreme court precedent.

                                   7
                            2.   Applicable Law

¶ 14   The Colorado Rules of Evidence govern the admissibility of

  expert testimony. A witness may offer expert testimony if she has

  “scientific, technical, or other specialized knowledge” that “will

  assist the trier of fact to understand the evidence or to determine a

  fact in issue,” and she is “qualified as an expert [based on that]

  knowledge, skill, experience, training, or education.” CRE 702.

  “Testimony in the form of an opinion or inference” isn’t

  objectionable merely because it embraces an ultimate issue to be

  decided by the fact finder, CRE 704, but an expert witness can’t tell

  the jury what result to reach or form conclusions for the jurors that

  they are competent to reach on their own. People v. McFee, 

. Such impermissible testimony may include

  applying the law to the facts to reach a conclusion. United States v.

  Duncan, 

 (2d Cir. 1994) (“Generally, the use of

  expert testimony is not permitted if it will ‘usurp . . . the role of the

  jury in applying [the] law to the facts before it.’” (quoting United

  States v. Bilzerian, 

 (2d Cir. 1991))); cf. People

  v. Lawrence, 

 (expert’s testimony on

  materiality didn’t usurp the jury’s role where expert only “provide[d]


                                      8
  general testimony about when facts might be considered material”

  and “gave no opinion as to whether [the defendant] committed any

  of the crimes charged”).

¶ 15   In securities fraud cases, expert testimony on whether a

  particular transaction involved a security is acceptable under

  certain circumstances, as is testimony on the meaning of

  materiality and whether certain types of statements or omissions

  could be considered material. See, e.g., Lawrence, ¶¶ 30-34 (expert

  properly testified about what qualifies as a security, that the

  contract in question was a security, when a sale of a security is

  fraudulent, and what facts “might be material”); Pahl, 

 (testimony that a transaction involved a security and that the

  defendant’s alleged omissions were material didn’t usurp the jury’s

  role); People v. Prendergast, 

 (Colo. App. 2003) (the

  trial court didn’t err in allowing an expert to define materiality and

  to describe securities transactions as “seller beware”); People v.

  Rivera, 

 (Colo. App. 2002) (the trial court didn’t

  err in allowing testimony that an agreement was a security and that

  certain information the defendant allegedly knew but didn’t disclose

  was material and should have been disclosed). But even such


                                     9
  testimony “risks crossing th[e] line” between “acceptable opinion to

  unacceptable interference with the court’s or the jury’s role.” Pahl,

  

; see also 

 (noting that it was a “close question”

  whether the expert testimony at issue crossed the line).

¶ 16   So where is that line? It seems relatively clear that an expert

  witness testifying in these sorts of cases can opine on the

  requirements of securities laws; the meanings of certain concepts,

  such as materiality; whether a particular transaction involved a

  security; and, if a certain set of facts is as alleged, whether a

  particular statement or omission was material, within the meaning

  of the securities laws. The decisions by divisions of this court in

  Lawrence, Pahl, Prendergast, and Rivera involved such testimony.

  Even so, such an expert should not be allowed to opine on whether

  the prosecution’s factual allegations are true — that is, for example,

  whether the defendant did or did not say or do something, or

  whether particular events did or did not occur. Such testimony

  implicates a weighing of the evidence and determinations of

  credibility — matters that are for the jury alone to decide. See

  People v. Bridges, 

, ¶ 11 (“[I]t is solely the jury’s

  responsibility to determine whether a particular witness’s testimony


                                     10
  or statement is truthful.”); People v. Duncan, 

  (Colo. App. 2004) (“[T]he resolution of inconsistent testimony and

  determination of the credibility of the witnesses are solely within the

  province of the jury.”); see also Lawrence, ¶ 33 (the trial court didn’t

  allow the expert to testify “whether there were material

  misrepresentations”). And, of course, a witness can’t be allowed to

  apply the law to the facts in a way that implies (or expresses) that

  the witness has determined the defendant’s guilt. People v. Penn,

  

; see People v. Lesslie, 

 (Colo.

  App. 1996) (expert witness may not “simply tell the jury what result

  to reach”).

¶ 17   In United States v. Scop, 

 (2d Cir. 1988), for

  example, the court held that an expert’s testimony that the

  defendants were “active” and “material” participants “in a

  manipulative and fraudulent scheme” to manipulate stock price in a

  particular company improperly invaded the province of the jury.

  The witness repeatedly phrased his opinions in the language of the

  relevant statutes, expressed conclusions that amounted to

  determinations of guilt, and indicated that his opinions “were based

  on his positive assessment of the trustworthiness and accuracy of


                                    11
  the testimony of the government’s witnesses.” 

; see

  also Lawrence, ¶ 34 (the expert witness didn’t give an opinion on

  whether the defendant committed any of the crimes charged, which

  would have been improper).

                             3.   Application

¶ 18   Applying these principles, we conclude that Alves’s testimony

  crossed the line between permissible and impermissible expert

  testimony in several ways.

¶ 19   After talking about the purpose of the securities laws and

  explaining the seller’s disclosure obligations generally, Alves said

  that the Attorney General’s Office had asked her to review the

  investigative materials to determine (1) whether there had been “an

  offer, sale or purchase of a security”; and (2) “whether or not any

  material omissions or material misstatements occurred in the sale of

  the security.” (Emphasis added.) She reviewed the reports of

  interviews with the investors and persons associated with the

  promotion (including Baker), financial information compiled by the

  Attorney General’s Office, documents provided to the investors, and

  perhaps other unspecified documents. Alves then testified at length

  about (1) what she believed Baker had told the investors; (2)


                                    12
whether Baker’s statements were material; and (3) whether the

things Baker had promised to the investors had come to pass. And

she did so not in hypothetical terms — i.e., if Baker did or did not

say or do something — but in terms expressing certain conclusions

as to what had occurred based on her assessment of the evidence.

For example:

     1.   Alves testified that the investors “were told by the

          defendant that he would not be taking a salary until

          Aviara was up and running or until it was profitable.

          When, in fact, the financial information I reviewed

          indicated that he took the investor proceeds right away

          and paid himself. That was clearly a material fact, in my

          opinion, to tell someone that, I’m going to work for free. .

          . . I’m not even going to take a salary.” And she testified

          that Baker “took the investor proceeds right away and

          paid himself.”

     2.   She said Baker “stat[ed] to all investors that there were

          . . . Class A investors who were poised to invest.” But

          “[i]t did not appear that there were any Class A investors

          imminent. And that was quite material.”


                                  13
     3.   She testified that Baker “told the investors that [their

          investment funds] would be held in escrow” but that

          “there was no escrow account at all.”

     4.   She said, “[T]hey had been told that they would at least

          get their principal back within one year. So that is

          another factor that is material.”

     5.   Alves later defended her reliance on the investors’

          reported statements, saying that since the interview

          reports prepared during the state’s investigation included

          the same statements from each investors, that

          “suggest[ed] the statements were consistently spoken by

          the defendant from investor to investor.”

     6.   She testified that the investigator who interviewed each

          investor reported Baker’s alleged representations to each

          investor in identical terms. When defense counsel asked

          Alves whether the investigator should have instead noted

          “exactly what the witness told” the investigator, she said,

          “I don’t have any reason to believe that’s not what they

          were told.”

These statements were improper, for at least two reasons.


                                 14
¶ 20   First, by saying these things, Alves told the jury what had

  happened in the case. Though Alves didn’t specifically tell the jury

  that she thought the investors were telling the truth, she spoke as

  though their allegations were true, which suggested that she had

  drawn her own conclusions about the investors’ credibility. And

  she phrased her opinions about what had happened definitively, as

  though there was no dispute that what she relayed was true. But

  these facts were largely disputed: Baker’s theory of defense was that

  he never made the alleged statements to the investors. So whether

  the investors were telling the truth about what happened was a

  matter solely for the jury’s determination. Duncan, 

.

¶ 21   Second, Alves’s testimony on whether the alleged statements

  were material went too far. Though generalized conclusions about

  what types of statements an investor could find material are

  acceptable, such testimony may be improper if, as in this case, it

  assesses witness testimony, indicates a belief in a particular version

  of the facts, and then applies the law to those facts to make

  conclusions reserved for the jury. See Scop, 

.




                                   15
¶ 22   We further conclude that the district court’s error wasn’t

  harmless with respect to Baker’s securities fraud and theft

  convictions. 3 Alves testified that she based her conclusions in part

  on information not shared with the jury, including Baker’s interview

  with investigators, thereby implying that she knew more about the

  facts than they did. Despite the fact Baker disputed the allegations

  about what he had said, Alves testified about them with authority

  and as though they were fact. And she then told the jury that the

  statements Baker had made (not was alleged to have made) were

  material; therefore, by necessary implication, she opined that Baker

  was guilty.

¶ 23   The danger that the jury credited Alves’s improper opinions is

  especially acute given that she testified as an expert, was employed

  by the State (and, as she told the jury, was “part of the process for



  3 Alves’s objectionable testimony, as discussed above, related to
  statements that Baker allegedly made to each investor, and
  therefore related to each securities fraud and theft charge. The
  error was harmless, however, with respect to Baker’s conviction for
  filing a false tax return. None of Alves’s objectionable testimony
  related to that charge, and none of the alleged statements that Alves
  attributed to Baker formed the basis of that charge. In fact, Alves
  didn’t mention taxes at all. The prosecution called a different
  witness to testify about tax fraud.

                                    16
selecting the cases for enforcement” and “one of the decision-

makers who decides whether it’s going to be administrative, civil, or

a criminal case”), and testified as to technical matters about which

the jurors were likely to afford her particular credibility. See People

v. Koon, 

 (Colo. App. 1986) (“[T]he therapist’s

status as an expert witness augmented her [improper] testimony

with an aura of trustworthiness and reliability.”); 4 Jack B.

Weinstein & Margaret A. Berger, Weinstein’s Federal Evidence §

702.02[5], at 702-21 (2d ed. 2015) (“In jury trials, the danger of

prejudice resulting from the presentation of expert testimony is

significant, because of the potential for the jury to automatically

accept an expert witness’s testimony.”); cf. United States v. Montas,

 (1st Cir. 1994) (case agent’s improper

testimony put “the expert’s stamp of approval on the government’s

theory”); United States v. Benson, 

 (7th Cir. 1991)

(trial court erred by allowing IRS agent to give expert opinions based

on inferences from the evidence and credibility determinations),

amended, 

 (7th Cir. 1992); Domingo-Gomez v. People,

 (Colo. 2005) (prosecutor’s remark about a

“screening process” implied that the State didn’t consider the


                                  17
  particular case weak and encouraged the jurors to “rely on the

  prosecutor’s judgment instead of their own convictions”); People v.

  Mendenhall, 

 (district attorney’s

  investigator’s testimony about how many potential cases he

  reviewed each year and how many of those cases resulted in

  charges was impermissible “screening” testimony).

¶ 24   The People argue that any error in admitting Alves’s testimony

  was harmless because the court instructed the jurors that they

  could accept or reject Alves’s testimony, defense counsel fully cross-

  examined her, and the prosecutor didn’t emphasize any of Alves’s

  implicit credibility determinations in closing arguments. But

  considered in light of so many improper statements, and in light of

  Alves’s expert status, we aren’t convinced that these safeguards

  were sufficient. We therefore conclude that there is a reasonable

  possibility that Alves’s improper testimony contributed to Baker’s

  securities fraud and theft convictions.

                             B.    Variance

¶ 25   Next, Baker contends that the district court erred by allowing

  the prosecution to present evidence that he had told Donna Taylor

  that he would register the securities, when that allegation wasn’t


                                    18
  included in the indictment and the People hadn’t charged him with

  selling unregistered securities. In turn, Baker argues, this error led

  to another error: allowing Alves to testify about “blue sky filings”

  and to tell the jury that the “general rule” is that someone selling a

  security in Colorado must register it.

¶ 26   We choose to address this issue because it is likely to arise on

  remand.

¶ 27   We review de novo whether a variance occurred. People v.

  Rail, 

, ¶ 48 (cert. granted on other grounds Apr. 10,

  2017). Because defense counsel preserved this issue by timely

  objecting to the evidence on this basis, 4 we reverse only if any error

  wasn’t harmless. See Hagos, ¶ 12.




  4 The People argue that this issue wasn’t preserved because Baker
  “didn’t argue that this testimony created a prejudicial variance on
  the securities fraud charge relating to the Taylors.” So, they say, we
  should review for plain error, not harmless error, when a party
  “alters the grounds for his objection on appeal.” True, defense
  counsel never used the term “variance” in his objections. But he
  did say that “there is absolutely no charge that [Baker] improperly
  sold unregistered securities” and “it’s not alleged to be one of the
  alleged false statements that he made.” That was close enough to
  preserve the issue. See Rael v. People, 

 (“We do
  not require that parties use ‘talismanic language’ to preserve an
  argument for appeal.”).

                                    19
¶ 28   A simple variance occurs when “the evidence presented at trial

  proves facts materially different from those alleged in the charging

  document.” People v. Smith, 

. In such a case,

  reversal is generally not required unless the variance prejudiced the

  defendant’s substantial rights. See id.; Pahl, 

. A

  defendant fails to establish prejudice if he does not allege that he

  would have challenged the prosecution’s case differently or that he

  could have produced different evidence in his defense. Pahl, 

.

¶ 29   There was a simple variance in this case. At trial, the

  prosecution presented evidence that Baker had said that he would

  register the securities. But the indictment alleged that Baker

  “indicated to at least one investor that he did not believe he needed

  to file or register the security.” The two allegations are materially

  different; indeed, they arguably conflict.

¶ 30   But the variance doesn’t require reversal because it didn’t

  substantially influence the verdict or prejudice Baker. Baker

  argues that he was not prepared to respond to the allegation that he

  told Donna Taylor he would register the securities. Yet, he doesn’t

  explain how he would have challenged the prosecution’s case


                                    20
  differently had he known about this allegation ahead of time. See

  

 Baker’s case focused on showing the jury that he didn’t say or

  would not have said the things the victims alleged, and that he had

  provided the victims with accurate information on paper. And

  defense counsel attacked the registration allegation the same way. 5

  Under these circumstances, and in light of the other alleged

  material misstatements and omissions, we don’t see how this

  variance substantially influenced the verdict or prejudiced Baker’s

  substantial rights.

                            C.    Amelioration

¶ 31   Last, Baker argues that we should reduce one of his theft

  convictions (count 4, theft of over $20,000 from Ng) from a class 3

  felony to a class 4 felony pursuant to section 18-1-410(1)(f)(I),

  C.R.S. 2019 (postconviction relief is available where there has been

  a significant change in the law affecting the applicant’s conviction

  or sentence). Because we reverse all of Baker’s securities fraud and




  5 For example, during closing argument, defense counsel argued
  that it didn’t make sense for Baker to promise to register the
  security “when literally every single document that he provided [to
  Donna Taylor] clearly indicates that this is not going to be
  registered.”

                                    21
  theft convictions, this argument is moot. See People v. Denhartog,

  

 (reversal of conviction renders moot a challenge

  to the sentence for that conviction).

                             III.   Conclusion

¶ 32   Baker’s securities fraud and theft convictions and sentences

  are reversed. The case is remanded for a new trial on those counts.

  In all other respects, the judgment is affirmed.

       JUDGE FOX and JUDGE TOW concur.




                                     22