ILNews

Judges: Evidence proves scienter in fraud case

Jennifer Nelson
January 1, 2008
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The 7th Circuit Court of Appeals upheld fines against two men convicted of defrauding investors, finding a reasonable jury would have found them guilty of scienter even though the defendants didn't take the stand.

In Thursday's ruling in United States Securities and Exchange Commission v. Melvin R. Lyttle and Paul E. Knight, Nos. 07-2466, 07-2467, Melvin Lyttle and Paul Knight appealed the $110,000 fines each got following a grant of summary judgment in favor of the SEC on a variety of counts and an award of injunctive relief.

Lyttle and Knight argued because scienter - knowledge that a person knows he is making false or reckless representations to investors - is a state of mind, summary judgment can almost never be granted in favor of a plaintiff who has the burden to prove it. And, because the two refused to testify in the case, they believe a jury couldn't convict them without knowing their states of mind.

But the 7th Circuit didn't accept Lyttle or Knight's arguments, finding the SEC provided sufficient circumstantial evidence with regard to the defendants' beliefs that was reinforced by the inference of guilt from their refusal to testify. As a result, no reasonable jury could doubt the two acted with scienter, wrote Judge Richard Posner.

Lyttle and Knight offered three defenses regarding their states of mind which Judge Posner labeled as "'I am just a copying machine' defense, the 'honor among thieves' defense, and the 'better liar' defense." They argued they merely repeated the lies and misrepresentations made to them by another person who may have been the ringleader in the defrauding scheme. They were victims of fraud by that person, who pocketed more money in the scheme than they did, they argued. That reminded the judge of the highwayman's case in which one highwayman sued another, claiming he was entitled to a larger share of the money they had stolen. Summing up the outcome, "The suit was dismissed, both were hanged, and the plaintiff's lawyers were fined for having brought a suit 'both scandalous and impertinent,'" wrote Judge Posner.

In regards to the "better liar" defense, the defendants believed the false representations that they made because the investors believed them, so if the lie was skillful enough to deceive the victim, then it must have also deceived the liar, he wrote.

"For it is inconceivable that the defendants could have believed the cascade of fantastic lies that they told the investors," wrote the judge, who ended the opinion with: "Enough said."
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  1. The is an unsigned editorial masquerading as a news story. Almost everyone quoted was biased in favor of letting all illegal immigrants remain in the U.S. (Ignoring that Obama deported 3.5 million in 8 years). For some reason Obama enforcing part of the immigration laws was O.K. but Trump enforcing additional parts is terrible. I have listed to press conferences and explanations of the Homeland Security memos and I gather from them that less than 1 million will be targeted for deportation, the "dreamers" will be left alone and illegals arriving in the last two years -- especially those arriving very recently -- will be subject to deportation but after the criminals. This will not substantially affect the GDP negatively, especially as it will take place over a number of years. I personally think this is a rational approach to the illegal immigration problem. It may cause Congress to finally pass new immigration laws rationalizing the whole immigration situation.

  2. Mr. Straw, I hope you prevail in the fight. Please show us fellow American's that there is a way to fight the corrupted justice system and make them an example that you and others will not be treated unfairly. I hope you the best and good luck....

  3. @ President Snow - Nah, why try to fix something that ain't broken??? You do make an excellent point. I am sure some Mickey or Minnie Mouse will take Ruckers seat, I wonder how his retirement planning is coming along???

  4. Can someone please explain why Judge Barnes, Judge Mathias and Chief Judge Vaidik thought it was OK to re weigh the evidence blatantly knowing that by doing so was against the rules and went ahead and voted in favor of the father? I would love to ask them WHY??? I would also like to ask the three Supreme Justices why they thought it was OK too.

  5. How nice, on the day of my car accident on the way to work at the Indiana Supreme Court. Unlike the others, I did not steal any money or do ANYTHING unethical whatsoever. I am suing the Indiana Supreme Court and appealed the failure of the district court in SDIN to protect me. I am suing the federal judge because she failed to protect me and her abandonment of jurisdiction leaves her open to lawsuits because she stripped herself of immunity. I am a candidate for Indiana Supreme Court justice, and they imposed just enough sanction so that I am made ineligible. I am asking the 7th Circuit to remove all of them and appoint me as the new Chief Justice of Indiana. That's what they get for dishonoring my sacrifice and and violating the ADA in about 50 different ways.

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