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. I have an open CHINS case I failed a urine screen I have since got clean completed IOP classes now in after care passed home inspection my x sister in law has my children I still don't even have unsupervised when I have been clean for over 4 months my x sister wants to keep the lids for good n has my case working with her I just discovered n have proof that at one of my hearing dcs case worker stated in court to the judge that a screen was dirty which caused me not to have unsupervised this was at the beginning two weeks after my initial screen I thought the weed could have still been in my system was upset because they were suppose to check levels n see if it was going down since this was only a few weeks after initial instead they said dirty I recently requested all of my screens from redwood because I take prescriptions that will show up n I was having my doctor look at levels to verify that matched what I was prescripted because dcs case worker accused me of abuseing when I got my screens I found out that screen I took that dcs case worker stated in court to judge that caused me to not get granted unsupervised was actually negative what can I do about this this is a serious issue saying a parent failed a screen in court to judge when they didn't please advise

  2. I have a degree at law, recent MS in regulatory studies. Licensed in KS, admitted b4 S& 7th circuit, but not to Indiana bar due to political correctness. Blacklisted, nearly unemployable due to hostile state action. Big Idea: Headwinds can overcome, esp for those not within the contours of the bell curve, the Lego Movie happiness set forth above. That said, even without the blacklisting for holding ideas unacceptable to the Glorious State, I think the idea presented above that a law degree open many vistas other than being a galley slave to elitist lawyers is pretty much laughable. (Did the law professors of Indiana pay for this to be published?)

  3. Paul Hartman of Burbank, Oh who is helping Sister Fuller with this Con Artist Kevin Bart McCarthy scares Sister Joseph Therese, Patricia Ann Fuller very much that McCarthy will try and hurt Patricia Ann Fuller and Paul Hartman of Burbank, Oh or any member of his family. Sister is very, very scared, (YES, I AM) This McCarthy guy is a real, real CON MAN and crook. I try to totall flatter Kevin Bart McCARTHY to keep him from hurting my best friends in this world which are Carolyn Rose and Paul Hartman. I Live in total fear of this man Kevin Bart McCarthy and try to praise him as a good man to keep us ALL from his bad deeds. This man could easy have some one cause us a very bad disability. You have to PRAISAE in order TO PROTECT yourself. He lies and makes up stories about people and then tries to steal if THEY OWN THRU THE COURTS A SPECIAL DEVOTION TO PROTECT, EX> Our Lady of America DEVOTION. EVERYONE who reads this, PLEASE BE CAREFUL of Kevin Bart McCarthy of Indianapolis, IN My Phone No. IS 419-435-3838.

  4. Joe, you might want to do some reading on the fate of Hoosier whistleblowers before you get your expectations raised up.

  5. I had a hospital and dcs caseworker falsify reports that my child was born with drugs in her system. I filed a complaint with the Indiana department of health....and they found that the hospital falsified drug screens in their investigation. Then I filed a complaint with human health services in Washington DC...dcs drug Testing is unregulated and is indicating false positives...they are currently being investigated by human health services. Then I located an attorney and signed contracts one month ago to sue dcs and Anderson community hospital. Once the suit is filed I am taking out a loan against the suit and paying a law firm to file a writ of mandamus challenging the courts jurisdiction to invoke chins case against me. I also forwarded evidence to a u.s. senator who contacted hhs to push an investigation faster. Once the lawsuit is filed local news stations will be running coverage on the situation. Easy day....people will be losing their jobs soon...and judge pancol...who has attempted to cover up what has happened will also be in trouble. The drug testing is a kids for cash and federal funding situation.