United States v. Tarallo

380 F.3d 1174 (9th Cir. 2004)

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Nature of the Case

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Facts

D and two co-defendants, Colvin and Larson, participated in a fraudulent telemarketing scheme. Colvin owned several companies used in the scheme, including Intellinet, Inc., and Larson was Intellinet's sales manager. D was hired by Intellinet as a telemarketer, and he participated in the fraud from April 1997 until February 20, 1998. Ds solicited those called to invest in various businesses whose value and operations were fictitious. These purported businesses included Medical Advantage, Inc. (Medical Advantage), Lamelli Medical Technology, Inc. (Lamelli), and R.A.C. International, Inc. (R.A.C.). Ds represented that Medical Advantage operated independent weight loss clinics around the country and had a projected 1997 revenue of $8.2 million and that C. Everett Koop and Tom Brokaw supported or were affiliated with the company. These were all lies. D falsely represented to potential investors that Lamelli had developed a detoxification system that could detoxify a person of all alcohol or drugs in 15 minutes, that the system had won FDA approval, and that $187 million in revenue was expected to be generated by this alleged invention in 1998. Ds falsely represented to potential investors that R.A.C. had generated $2.3 million in revenue in 1997 from sales of motor oil, car batteries, and tools and that the company projected for 1998 revenues of approximately $3.5 million. The victims would invest with promissory notes, which would be held in a 'trust' for a fixed term of between 90 and 180 days. Investors would then receive 12 percent interest per annum and shares of 'restricted stock' in the company. The company's IPO would occur on or before the date on which the promissory note was to mature, at which point investors could (at their option) either receive back their invested principal or use it to purchase shares offered in the IPO. The funds were used by Ds and their associates, and the investors never saw their money again. D was charged with securities fraud and argued that he was unaware that the statements he made were false. D claimed he just read the scripts for each phone call. Another telemarketer testified that it was obvious that the script's promises of risk-free investments were false. Evidence showed that D knowingly lied to investors about his office’s location. The court instructed the jury that D would be guilty if he made the false statements either knowing that they were false or with reckless indifference as to the truth or falsity of the statements and that D did not need to know that his actions were unlawful to be found to have acted knowingly. The court stated that willfully and knowingly had the same meaning. D was convicted and appealed.