On Wednesday of this week, the Court of Appeals for the Sixth Circuit affirmed the conviction of Ohio investment adviser Mark Lay. See U.S. v. Lay, 2010 WL 2757123 (CA.6, July 14, 2010). Lay was indicted for violating 15 U.S.C. § 80b-6(2) and (4) for engaging in a course of business which operated as a deceit upon his client and engaging in a practice that was deceptive or manipulative. Specifically, Lay was accused of violating a leverage cap of 150% within an advisory agreement and then failing to disclose that failure to his client.
On appeal, Lay argued unsuccessfully that the District Court should have granted him relief after the jury convicted him because the alleged victim – The Ohio Bureau of Worker’s Compensation – wasn’t actually a client to whom he owed a fiduciary duty. The Court concluded that a reasonable jury could have found Lay guilty of investment adviser fraud for failing to disclose his leveraging activity to his client -- even if the 150% was merely a guideline, rather than an agreed upon cap.
The District Court opinion affirmed by the Appellate Court provides a thorough and detailed review of the jury instructions utilized at trial. A review of the instruction’s expansive definitions of Investment Adviser Act terminology – such as “scheme” and “deceptive” – may very well prompt some sleepless nights for investment advisers who never even considered the possibility of imprisonment. See U.S. v. Lay, 566 F.Supp.2d 652 (N.D. Ohio 2008).