15 of 17 securities fraud charges against 1 man upheld on appeal

A 17-count indictment against a man accused of securities fraud has largely been upheld on appeal, although the Court of Appeals of Indiana did order the dismissal of two of those charges on statute-of-limitations grounds.

The case of Donald Johnson v. State of Indiana,  21A-CR-1234, dates back more than a decade, when in January 2012 complaints were filed with the Indiana Secretary of State and the Chesterton Police Department regarding financial transactions involving Johnson. An officer with the secretary’s office began investigating and discovered other possible victims, eventually leading him to seek a search warrant against Johnson in March 2014.

According to the probable cause affidavit, “Johnson solicited monies from individuals by guaranteeing a certain high-interest return on their money” in real estate development. Investors rolled over IRA accounts to Equity Trust Company, then money would go to Johnson’s company, Private Lending LLC.

According to the affidavit, investors received promissory notes signed by Johnson, but many “were unaware that their money was missing because Equity Trust would continue to send statements showing the money was in their accounts and bill them for custodial fees.” Sometimes investors would receive the promised interest payments for a period of time, but when the payments stopped and they asked for their investments back, “Johnson told them it was unavailable.”

The affidavit noted that no security registration existed for Johnson or Private Lending.

Johnson was subsequently indicted on 14 securities fraud charges, later amended to include three more, all as Class C felonies. An initial motion to dismiss failed in August 2016, and the Court of Appeals denied his motion for interlocutory appeal.

He filed a renewed motion to dismiss the majority of the charges based on Dvorak v. State, 78 N.E.3d 25 (Ind. Ct. App. 2017), trans. denied.  He argued the charges violated the statute of limitations and were not stated with sufficient certainty while the financial instruments were not securities and the state did not allege that he knowingly violated securities law. Also, he argued he was not required to register as a broker-dealer and “the financial instruments are exempt from securities registration by statute.”

Following a series of continuances and changes of both judge and counsel, the state responded to the motion to dismiss in April 2021, when it also requested leave to amend the charges “to the extent any charging documents or specific counts are deemed insufficient[.]” The Porter Superior Court ultimately denied the motion to dismiss and granted the state leave to amend the charges “to incorporate the statutory mens rea requirement.”

The trial court certified its order for interlocutory appeal and stayed the proceedings pending appeal, and the Court of Appeals accepted jurisdiction.

Johnson’s first argument on appeal claimed the trial court abused its discretion when it declined to dismiss certain charges based on the applicable statute of limitations. Specifically, Indiana Code § 35-41-4-2(a) imposes a five-year limit for bringing Class C felony charges for crimes committed before July 1, 2014.

But the Court of Appeals pointed to I.C. 35-41-4-2(h)(2), which provides that the “period within which a prosecution must be commenced does not include any period which … (2) the accused person conceals evidence of the offense … .”

“Thus, if the State alleges and ultimately proves the defendant committed positive acts of concealment to evade the detection of his crime, the statute of limitations period is tolled until the State becomes aware of the alleged commission of the crime,” Judge Melissa May wrote. The appellate court held that the state sufficiently alleged Johnson committed positive acts of concealment as to 15 of the 17 charges against him.

The two counts for which concealment was not sufficiently alleged, Counts III and IV, involved alleged victim Randall Hunt. According to the probable cause affidavit, in 2007, Hunt invested 80% of his retirement funds into what Johnson described as a Tennessee real estate project, for which Hunt could make a 100% profit in one year. Hunt only received $35,000 to $36,000 from Johnson from an investment of more than $101,000.

Johnson was charged with two counts as to Hunt on March 14, 2014, starting the applicable statute of limitations on March 14, 2009, unless there was evidence of a positive act of concealment.

“While the charging information and probable cause affidavits are sufficient to outline the State’s allegations of the crimes, they do not specifically allege Johnson committed a positive act of concealment in his interactions with Hunt as to toll the statute of limitations,” May wrote. “Thus, on their face the allegations against Johnson as they pertain to Hunt were filed outside of the statute of limitations, despite the fact that Hunt did not report them to the state until 2012, because the State did not allege Johnson committed a positive act of concealment to toll the limitations period.”

Thus, the denial of the motion to dismiss as to Counts III and IV was reversed. Also, on remand, Counts XIII and XIV must be amended to remove Hunt’s name from the list of alleged victims.

However, “all of the allegations involving the other alleged victims alleged a positive act of concealment that, if proven, may toll the statute of limitations,” May wrote. Those acts included lying to investors and concealing information from them.

The COA specifically held that an omission of relevant information could constitute a positive act of concealment. It added in a footnote that that holding “rejects the holding by another panel of our court in Dvorak … .”

But, the current panel noted, “Indiana does not recognize horizontal stare decisis.”

Turning next to Johnson’s insufficient-certainty argument, the appellate court determined that argument was “unavailing as he proffered defenses to the crimes in his motion to dismiss and in his brief on appeal.”

Additionally, the COA rejected his arguments that the financial instruments at issue were not securities, that he was not required to register as a broker-dealer and that the transactions were exempt from statutory obligations. The court determined those issues must be determined at trial, not in a motion to dismiss.

Finally, the appellate panel upheld the grant of the state’s request to amend the charging information.

“The State’s amendments to the charging informations, which would insert the word ‘knowingly’ to fulfill the mens rea requirement under Indiana Code section 23-19-5-8, constitute an amendment of substance because the word ‘knowingly’ is essential to making a valid charge of the crime,” May wrote. “… However, as the State notes, Johnson ‘has been on notice since 2014 as to the alleged acts of concealment and fraudulent scheme’ and his claim ‘that the state has had sufficient time to make these amendments simply does not establish prejudice[.]’”

The case was remanded for further proceedings.