United States v. Leonard

Paul Dickau and Nanci Silverstein (defendants) operated independent sales offices that sold interests in several limited liability corporations (LLCs). These LLCs were created to produce motion pictures. Dickau and Silverstein solicited investments in the LLCs and mailed offering materials to potential investors. The offering materials included documents indicating that investors would play an active role in the management of the LLCs. However, the investors were actually given a very passive role in the management of the LLCs. The investors rarely voted, were not given an opportunity to negotiate the terms of the investment agreement, and did not accrue managerial rights until the LLCs were fully organized. Additionally, the investors were not required to have any particular experience in the film industry. Whenever an interest was sold in the LLCs, Dickau and Silverstein would receive a commission. The government charged Dickau and Silverstein with securities and mail fraud. In district court, a jury returned a verdict finding Dickau and Silverstein guilty of securities and mail fraud, based on Dickau’s and Silverstein’s failure to accurately disclose the sales commissions that were received. This disclosure is mandatory under securities laws. Dickau and Silverstein appealed, asserting that the investments in the LLCs did not constitute securities.