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Note: Kelson (Fraudster) attempted to raise funds to start several building projects but was unsuccessful, even after enlisting owners of a mortgage company to help. Fraudster instead turned to friends and colleagues, and their families, to raise USD 125,000 in order to obtain an LC for USD 15,000,000 to entice investors. Fraudster explained to these investors that their contributions would be short-term, lowrisk investments and exchanged these investments for promissory notes several times larger than the amounts the investors provided.

The promissory notes stated that S.D.C. Financial Services, an LLC that Fraudster opened the same day that the promissory notes were issued, would pay them within thirty days. Fraudster then transferred some of the deposited funds to another account, used the money for personal use, and used some of the funds for legal fees. Fraudster failed to obtain the LC and S.D.C.'s bank account subsequently closed with a negative balance of USD 9,000.

State of Utah (Petitioner) charged Fraudster with securities fraud and engaging in a pattern of unlawful activity, and Fraudster was convicted. At trial, Fraudster's defense was that her promissory notes did not constitute securities under Utah law. A special instruction was given to the jury that "a 'note' is presumed to be a security..." with a list of exceptions; another instruction followed that gave the jury a test to determine if a "note" fit under an exception.

On appeal, the appellate court reversed on grounds that Fraudster's counsel rendered her ineffective assistance by not objecting to the special instruction that it claimed shifted the burden of proof beyond a reasonable doubt away from Petitioner and onto Fraudster. On further appeal, the Utah Supreme Court reversed, ruling that courts are entitled to instruct juries to make presumptions where matters of state law are concerned and thus that the instructions at trial were appropriate and did not shift the burden of proof to Fraudster.

[ALC]

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This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.