State v. Hurd - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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[Cite as State v. Hurd, 89 Ohio St.3d 616, 2000-Ohio-2.]

THE STATE OF OHIO, APPELLANT, v. HURD, APPELLEE.
[Cite as State v. Hurd (2000), 89 Ohio St.3d 616.]
Securities -- Making false representations in regard to registering transactions
by description is not the equivalent of making false representations in
regard to registering securities by description -- Former R.C.
1707.44(B)(1), construed and applied.
(No. 99-1140 -- Submitted March 7, 2000 -- Decided September 13, 2000.)
APPEAL from the Court of Appeals for Franklin County, No. 96APA03-326.

Appellee, Dwight I. Hurd, provided legal counsel for Dublin Securities,
Inc. ("DSI") between 1987 and 1992. During this period, DSI was involved in a
scheme that entailed selling worthless or nonexistent shares of stock. To sell any
securities, a person is required by the Ohio Securities Act to register the securities
with the Division of Securities. In furtherance of the scheme, Hurd registered the
stocks to be sold by DSI on Form 6(A)(1) pursuant to R.C. 1707.06(A)(1), which
governs the registration of transactions by description. On various 6(A)(1) forms,
Hurd claimed that DSI would not be involved in the sale of the securities and that
DSI's commission, in connection with the sale, would be limited to three percent.
Because the issue is not before us, we will assume that these claims were false
representations.

A jury found Hurd guilty of engaging in a pattern of corrupt activity. R.C.
2923.32. The jury also found Hurd guilty of three counts of violating R.C.
1707.44(B)(1), which prohibits a person from making false representations in the
registration of securities by description.

On appeal, the court of appeals reversed the trial court and ruled that the
state had not presented evidence that Hurd made registrations of securities by
description. R.C. 1707.44(B)(1). Instead, the appellate court concluded that the

evidence presented at trial indicated that the filings with the Division of Securities
were registrations of transactions by description. R.C. 1707.06(A)(1). The court
concluded further that if false representations were made, they were made in
regard to registering transactions by description and that R.C. 1707.44(B)(1) had
not been violated.

The cause is now before this court upon the allowance of a discretionary
appeal.
__________________

Vorys, Sater, Seymour & Pease, L.L.P., Duke W. Thomas, James E.
Phillips, David F. Axelrod and W. Evan Price II, for appellant.

Thompson Hine & Flory, L.L.P., and William C. Wilkinson; Synenberg &
Marein and Roger M. Synenberg, for appellee.
__________________

PFEIFER, J. Appellee Hurd was charged with making false
representations in regard to registering securities by description. R.C.
1707.44(B)(1). The evidence presented at trial established that any false
representations that were made were in regard to registering transactions by
description. In its appeal, the state has asked us to determine, for the purposes of
imposing criminal liability pursuant to R.C. 1707.44(B)(1), that making false
representations in regard to registering transactions by description is the
equivalent of making false representations in regard to registering securities by
description. For the reasons that follow, we decline the invitation.

Former R.C. 1707.44(B) provided:

"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:

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"(1) Complying with sections 1707.01 to 1707.45 of the Revised Code, in
regard to registering securities by description." 140 Ohio Laws, Part I, 1145.

When a statute is plain and unambiguous, as is R.C. 1707.44(B)(1), "there
is no occasion for resorting to rules of statutory interpretation." Sears v. Weimer
(1944), 143 Ohio St. 312, 28 O.O. 270, 55 N.E.2d 413, paragraph five of the
syllabus; Storer Communications, Inc. v. Limbach (1988), 37 Ohio St.3d 193,
194, 525 N.E.2d 466, 467. Accordingly, despite the state's entreaties, we will not
examine "the General Assembly's manifest intent as evidenced by the legislative
purpose, the practical consequences of the lower Court's construction, the
statute's language, its structure, the absence of any other direct prohibition and the
overall statutory scheme." Instead, we will apply the statute as written and
conduct no further investigation. State ex rel. Herman v. Klopfleisch (1995), 72
Ohio St.3d 581, 584, 651 N.E.2d 995, 997-998.

We are further constrained in interpreting R.C. 1707.44(B)(1) by R.C.
2901.04(A), which states that "[s]ections of the Revised Code defining offenses
or penalties shall be strictly construed against the state, and liberally construed in
favor of the accused." However, "[t]he canon in favor of strict construction of
criminal statutes is not an obstinate rule which overrides common sense and
evident statutory purpose." State v. Sway (1984), 15 Ohio St.3d 112, 115, 15
OBR 265, 268, 472 N.E.2d 1065, 1068.

For purposes of this appeal, we assume that Hurd made false
representations. However much our society and our legal system abhor false
representations, our General Assembly has not criminalized all such conduct. It
may seem that we are mired in a Borgesian Labyrinth or Kafkaesque Castle,
where there is a wrongdoing and yet no way to punish the perpetrator.

However, the statute, R.C. 1707.44(B), is clear. The General Assembly
differentiates between securities "requiring registration by description," R.C.
1707.05, and transactions "requiring registration," R.C. 1707.06. When

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confronted with an "evident statutory purpose," we have at times extended the
scope of criminal statutes to include analogous conduct. See Sway, supra; State v.
Warner (1990), 55 Ohio St.3d 31, 564 N.E.2d 18. Here, however, the General
Assembly makes a clear distinction, rendering us unable to determine that
securities "requiring registration by description" and transactions "requiring
registration" are analogous.

The General Assembly could have included false representations in regard
to transactions by description among the prohibitions of R.C. 1707.44(B) or
prohibited all false representations made for the purpose of "[c]omplying with
sections 1707.01 to 1707.45 of the Revised Code." R.C. 1707.44(B)(1). The
General Assembly did neither, and we will not, we cannot, pretend that it did.

Unfortunately for the state and all those appalled by the acts committed by
various employees of DSI, our review of the record yields the inescapable
conclusion that any false representations made by Hurd were not made "in regard
to registering securities by description." R.C. 1707.44(B)(1). Accordingly, Hurd
cannot be convicted of violating R.C. 1707.44(B)(1). Further, the making of false
representations in regard to registering transactions by description, something we
assume Hurd to have done, is not "defined as an offense in the Revised Code,"
R.C. 2901.03(A). Accordingly, Hurd cannot be convicted of making false
representations in regard to registering transactions by description.1 We affirm
the judgment of the court of appeals.
Judgment affirmed.

MOYER, C.J., DOUGLAS and F.E. SWEENEY, JJ., concur.

RESNICK, COOK and LUNDBERG STRATTON, JJ., dissent.
FOOTNOTE:

1.
It is possible that Hurd could have been charged with making false
representations for the purpose of "selling" securities, R.C. 1707.44(B)(4),
making false statements "with purpose to mislead a public official in performing

4

the public official's official function," R.C. 2921.13(A)(3), making false
statements "with purpose to secure the issuance by a governmental agency of a
license, permit, authorization, certificate, registration, release, or provider
agreement," R.C. 2921.13(A)(5), or making false statements "in writing on or in
connection with a report or return [which] is required or authorized by law," R.C.
2921.13(A)(7).
__________________

LUNDBERG STRATTON, J., dissenting. I respectfully dissent. I believe
the majority's construction of R.C. 1707.44(B)(1) results in an illogical
conclusion that fails to further the overall purpose of the Securities Act. This
opinion, in effect, renders meaningless the requirement in R.C. 1707.08 for an
individual to verify by oath the description of transactions for the sale of
securities because there is no criminal penalty for failure to comply.

Ohio's securities laws are designed "to prevent the fraudulent exploitation
of the investing public through the sale of securities." In re Columbus Skyline
Securities, Inc. (1996), 74 Ohio St.3d 495, 498, 660 N.E.2d 427, 429. To that
end, the statutory scheme provides for registration of the securities to be sold and
civil remedies and criminal penalties for noncompliance.

The Securities Act provides for registration by description. It may be
registration of a particular security itself or, if a series of transactions to sell or
distribute securities is planned, then the entire proposed transaction may be
registered by description. R.C. 1707.05 and 1707.06. Appellee utilized the latter
type by filing a Form 6(A)(1).

R.C. 1707.08 describes the process for registration by description, whether
it be of a security as set forth in R.C. 1707.05 or of a transaction in R.C. 1707.06.
The process in R.C. 1707.08 makes no differentiation between the two types.
Both require a "description, verified either by the oath of the person filing it or of
any person having knowledge of the facts."

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Appellee was accused of making false representations on the Form
6(A)(1) filings that he prepared. He was charged under R.C. 1707.44(B)(1),
which, at the time of the indictment, prohibited a person from knowingly making
false representations concerning a material and relevant fact for the purpose of
"complying with sections 1707.01 to 1707.45 of the Revised Code, in regard to
registering securities by description."2 (Emphasis added.) Because the section
used the word "securities" and did not also use the word "transaction," appellee
argues that he cannot be convicted under this section. A majority of this court
agrees. As a result, the majority concludes that Ohio's securities laws intended to
prohibit false representations by those who register a security by description;
however, there is no proscription against making false representations when
registering an entire transaction to sell securities. By narrowly focusing on the
phrase "registering securities by description," the majority completely eliminates
from R.C. Chapter 1707 any prohibition against making false representations that
are material and relevant when registering an entire transaction for the sale of
securities.

On more than one occasion, this court has relied on the maxim that "strict
construction of criminal statutes is not an obstinate rule which overrides common
sense and evident statutory purpose." State v. Warner (1990), 55 Ohio St.3d 31,
62, 564 N.E.2d 18, 47; State v. Sway (1984), 15 Ohio St.3d 112, 116, 15 OBR
265, 268, 472 N.E.2d 1065, 1068. The canon in favor of strict construction "is
satisfied if the statutory language is given fair meaning in accord with the
manifest intent of the General Assembly." Id. Instead, the majority here has
decided to forgo the fair meaning of the statute that furthers the overall intent and
objectives of the Securities Act. The majority has reached an impractical,
illogical result that is contrary to the public policy behind the Act.

Instead of looking at the phrase "registering securities by description" as a
term of art that exclusively means only those securities as described in R.C.

6

1707.05, the majority should apply the phrase to all registrations by description.
A "transaction," as that term in used in R.C. 1707.06, is a transaction or a series
of transactions, to sell securities. There is no need to do a comparison to find that
the terms are analogous as this court did in Sway or Warner. Both the registration
of a security in R.C. 1707.05 and the registration of a transaction in R.C. 1707.06
involve the registering by description of securities that are intended to be sold to
the public.

The anti-fraud provisions of the Securities Act must be liberally construed.
Columbus Skyline Securities, 74 Ohio St.3d at 498, 660 N.E.2d at 429. The
inclusion in R.C. 1707.44(B)(1) of the phrase "complying with sections 1707.01
to 1707.45 of the Revised Code" must not be ignored. Had the General Assembly
intended for R.C. 1707.44(B)(1) to apply exclusively to those securities described
in R.C. 1707.06, this would have been expressly set forth in the statute. Instead,
the broad scope of the phrase indicates that it applies to all securities registered by
description, whether it be a security in R.C. 1707.05, or a transaction to sell
securities in R.C. 1707.06.

Appellee cries due-process violation on the basis that he has been charged
with violating R.C. 1707.44(B)(1), yet the statute does not mention the activity in
which he engaged, i.e., registering transactions by description. How absurd that
an experienced attorney, practicing in the area of securities, would believe that the
law prohibits lying on a registration form that registers securities by description,
but would believe there is no prohibition against lying on a form to register a
transaction of sales by description. The law requires registration in some manner,
unless a security is exempt from registration, and it is illegal to lie about a
material and relevant fact when registering or selling those securities. Appellee
knew this. His due-process concerns lack merit.

R.C. 1707.44(B)(1) applies to all registrations by description, whether it
be a security, or a transaction to sell securities. The underlying premise of

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registration by description is registration of the securities to be sold. Despite its
narrowly focused analysis to the contrary, even the majority acknowledges that
appellee registered securities. The majority states in its first paragraph that "Hurd
registered the stocks to be sold by DSI on Form 6(A)(1)."

Consequently, I dissent and would reverse the judgment of the court of
appeals.

RESNICK and COOK, JJ., concur in the foregoing dissenting opinion.
FOOTNOTE:

2.
R.C. 1707.44(B)(1) has been amended to read: Complying with
this chapter, in regard to registering securities by description.

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