P. v. Heath



Filed 6/28/11 P. v. Heath CA4/3




NOT TO BE PUBLISHED IN OFFICIAL REPORTS



California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.





IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

THE PEOPLE, Plaintiff and Respondent, v. DANIEL WILLIAM HEATH and DENIS O’BRIEN, Defendants and Appellants.

G040653 (Super. Ct. No. RIF117775) O P I N I O N

Appeal from a judgment of the Superior Court of Riverside County, Ronald L. Taylor, Judge. (Retired judge of the Riverside Sup. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Affirmed in part, reversed in part, and remanded with directions.
Mark D. Greenberg for Defendant and Appellant Daniel William Heath.
Jean Matulis, under appointment by the Court of Appeal, for Defendant and Appellant Denis O’Brien.
Edmund G. Brown, Jr., and Kamala D. Harris, Attorneys General, Dane R. Gillette, Chief Assistant Attorney General, Gary W. Schons, Assistant Attorney General, James D. Dutton and Elizabeth A. Hartwig, Deputy Attorneys General, for Plaintiff and Respondent.

* * *

A jury convicted defendants Daniel William Heath and Denis O’Brien of multiple counts of many theft- and securities-related offenses in connection with a Ponzi scheme targeted at retirement-age victims.[1] Defendants contend their convictions must be reversed based on the statute of limitations, unconstitutional vagueness, jury instructional error, and cumulative error. Defendants further argue their respective presentence conduct credit must be recalculated in accordance with Penal Code section 4019, as amended effective January 25, 2010.[2] On this last issue, we agree and remand the case to the trial court with directions to recalculate defendants’ presentence conduct credit. In all other respects, we affirm the judgment.

FACTS

On November 14, 2007, the People filed the operative information charging defendants with multiple counts of elder theft (§ 368, subd. (d)), grand theft (§ 487, subd. (a)), sale of unqualified or nonexempted securities (Corp. Code, § 25110), sale of securities by means of misleading communications (Corp. Code, § 25401), and sale of securities in contravention of a desist and refrain order (Corp. Code, § 25532, subd. (a)(1)). As to many of these counts, the People alleged defendants took more than $150,000 (§ 12022.6, subd. (a)(2))[3] or more than $50,000 (§ 12022.6, subd. (a)(1)).[4] The information further charged defendants with one count each of engaging in a fraudulent course of business involving securities sales between January 1, 1993 and April 29, 2004 (Corp. Code, § 25541) and conspiracy to commit theft between January 1, 1993 and April 29, 2004 (§§ 182, subd. (a)(1), 487, subd. (a)), along with the aggravated white collar crime enhancement of committing two or more related fraud felonies taking over $500,000 (§ 186.11, subd. (a)(2)). The information also alleged the victim investors did not discover defendants’ violations of the Penal Code and the Corporations Code until on or after June 2003, when defendants stopped making interest payments to the victims. The information further charged Heath with money laundering over $2,500,000 between March 30, 1998 and April 29, 2004 (§§ 186.10, subds. (a), (c)(1)(D)), and five counts of filing a false tax return (Rev. & Tax. Code, § 19705). In total, the information charged 403 counts. After the court dismissed two counts, 401 counts remained. Heath was charged in all of them, O’Brien in 73 counts.
The jury convicted Heath of 400 counts and O’Brien of 72 counts, acquitted them on one count, and found true all enhancements.
The court denied probation to Heath and sentenced him to 127 years and four months in prison. The court denied probation to O’Brien and sentenced him to 40 years and four months in prison. The court ordered them, jointly and severally, to pay $117 million in restitution (minus amounts recovered by the receiver);[5] Heath was also ordered to pay unpaid taxes.
The underlying facts elicited at trial covered a period from the 1980’s to June 2004, when Heath, O’Brien, Schlarmann, and John Heath were arrested.

Projects Funded with Investors’ Money
Heath and Schlarmann first met in 1982, when Schlarmann was working in the grocery business and Heath was a salesman and delivery man for a water company. In 1983, Heath became a salesman for the Independent Order of Foresters (Foresters), an organization that sold insurance and other investment products, and where Heath’s father, John Heath, already worked. Schlarmann became a mortgage broker and in 1985 moved to Big Bear Lake, where he worked as a licensed real estate broker.
Around 1989, Mike Allen, the owner of a Big Bear lodge, asked Schlarmann to find him a commercial loan, so that Allen could buy an adjoining parcel to his lodge and build cabins there. The project was eventually named Bear Manor. Schlarmann paid Heath a “handsome” referral fee in return for Heath raising $675,000 from some Foresters clients to fund the loan. Investors were to receive 10 percent interest and the loan term was supposed to be at most one year. Each investor received a recorded, fractionalized deed of trust as a security interest.
But Allen defaulted without completing the improvements, so Heath and Schlarmann foreclosed on the property. Schlarmann told Heath that if they sold the property in an unfinished condition, the investors would suffer a substantial loss. Heath suggested he and Schlarmann should complete the Bear Manor project themselves, then market the property and hopefully net a full recovery for the investors. But this would require raising more investment money in order to finish the cabins and to pay interest to current investors. Bear Manor was finished sometime before 1991.
The next project for Heath and Schlarmann was Janet Kay’s Bed & Breakfast in Big Bear Lake. Schlarmann planned to build two showcase homes, one as his private residence and one as a bed and breakfast named after his wife. Heath raised almost $4 million for the project from investors who received fractionalized trust deeds as security.
Heath used over $1 million of investors’ money to construct his own home in Chino Hills.
In 1991 or 1992, Foresters terminated Heath’s employment because Heath had directed Foresters’ clients to outside investments.
In 1993, Heath established Heath & Associates, a financial service company to offer investments. Through direct mail and cold phone calls, the company invited people to attend informational seminars. Heath formed Private Capital Management (PCM) around 1994. Heath had investors put their money into PCM; Heath used the PCM money to make “loans” at his discretion to companies that needed start-up capital or operating funds.
The next project, Northwoods Resort, began in 1993, when Heath and Schlarmann bought an abandoned hotel project in the Big Bear area with intentions of developing it. The cost eventually ballooned from $8 million to $22 million. Investors received interests in a limited partnership. After construction and cleanup, part of the hotel opened in 1995; it was finally completed in 1998.
Janet Kay’s Bed & Breakfast was never profitable and was losing $40,000 a month before Heath and Schlarmann closed it in 1994. Schlarmann wanted to sell the property after the bed and breakfast closed, but Heath refused. Heath did not want investors to learn the business had failed and that they would suffer a loss. Heath felt such a disclosure would hurt his ability to raise more money. Heath’s brochure stated that no investor had ever lost money with Heath & Associates.
By 2000, Northwoods Resort was breaking even operationally, but revenues were insufficient to cover its debt service of about $2.5 million per year.
Heath and Schlarmann continued operating Bear Manor until their arrest in 2004. During that time, Bear Manor lost money. Heath used PCM investment money to cover Bear Manor’s operational losses, but did not show the cash infusions as loans on the property’s books.
Other money-losing projects pursued by Heath and Schlarmann and financed with investor money included a golf center and 36 Quizno’s restaurants.

Fraud Perpetrated on Investor Victims
In the space of 11 years, from January 1993 through April 2004, defendants took in $187.6 million from about 1,500 people in a Ponzi scheme in which investors were paid money that came from other investors’ funds. The investors were ultimately paid $69.8 million and lost $117.8 million of principal.
Linda Brown was the marketing director for Heath & Associates. She was originally hired as a telemarketer who, along with as many as 13 other telemarketers, phoned people over age 50 and invited them to a free lunch (or dinner) and financial planning seminar. In a scripted solicitation, the telemarketers explained that the seminar would discuss maximizing interest, alternatives to certificates of deposit, reducing taxes, protecting assets, making safe investments, “and other assets [of concern] to the senior community.” Invitees were assured that no business would be conducted at the seminar, the meal would be great, and Heath was an excellent, knowledgeable speaker. Telemarketers were awarded a bonus when someone signed up to attend a seminar or a personal consultation with a Heath & Associates “financial planner.” Advertisements were also run for the seminars.
Brown’s husband invested his retirement savings of $487,000 with Heath in 2002. Brown asked Heath to find some good investments for the money. She told him not to invest all the money in PCM, and that she wanted a $150,000 annuity and a government insured investment. Unbeknownst to Brown, however, Heath invested most of the money in PCM and the balance in three companies owned by Heath.
Once, a telemarketer saw on O’Brien’s desk an interoffice memorandum about the company’s financial troubles and the need to hold off clients who asked about delinquent interest payments. At an office party, as O’Brien left the room, he chuckled, rubbed his hands with a sinister motion, and told the telemarketers, “Oh good. Now we can go rip off some old people.”
A Heath & Associates salesperson testified he introduced O’Brien at seminars as being in the top one percent of financial planners in the country.
James Byrne, a law school professor and an expert on commercial fraud, opined that defendants’ sale of investments involved commercial fraud. Byrne reached this conclusion after reviewing the receiver’s reports; transcripts of defendants’ presentations to and interviews with victims; defendants’ contracts with victims; and defendants’ advertisements, prospectuses, and other explanations of the investment written for the public. The advertisements unrealistically offered an investment return that was triple the return on a certificate of deposit, was guaranteed for five years, and was impervious to market fluctuations, and also promised that the investor’s principal would be secure. The advertisements played on seniors’ fears (“Will you survive the next five years‌” and promised inside information (“Come learn what the banks won’t tell you”.
Byrne had reviewed a DVD of O’Brien giving a seminar presentation that was clearly tailored for seniors and laid the basis for follow up personal consultations to talk about specifics. O’Brien made references and allusions to particular concerns of “seniors: loss of money [and health], inflation, the cost or need for expense of long-term care, and relying on children.” O’Brien appeared to be an eminently professional, experienced, and knowledgeable “person who was on the investor’s side” and would offer advice with no fees and select the right program for the investor taking into account all relevant considerations. O’Brien’s presentation denigrated as unsuitable all forms of investments (ranging from bank accounts to real estate to stocks) except for a single remaining vehicle — secured corporate notes.
Byrne opined the investment vehicle was “a gamble in untried or start-up or risky enterprises . . . offered under the guise of a safe investment.” There was no coherent business plan explaining how returns could be paid from revenues or asset increases or appreciation nor any evidence the security for the debt had been filed and perfected. The prospectus contained no substantial financial data.
Byrne opined the returns resulted from Ponzi financing. In a Ponzi scheme, the fraudster pays victims out of funds that were not earned by the enterprise, but creates the illusion the payments were made from the enterprise’s profits. In reality the payments are made from new investments in the enterprise made by victims. The payments add to the investment’s credibility and buy time for the fraudster. But the scheme is not economically sustainable and must collapse, “absent a miracle.” Often the fraudster hopes to “use his or her charisma to keep people . . . believing” and makes “increasingly desperate investments” trying to “save the day.”
Byrne testified that often the perpetrators of commercial fraud are articulate, charming, likeable, and charismatic, and convey an aura of authority and trust. They claim expertise in an area, suggest the victim does not have the necessary expertise, and offer the victim a very special, unique opportunity. Once a victim has trusted someone and acted in reliance on that trust, the victim may experience denial and embarrassment about admitting their judgment was wrong, so that the victim can become an “ally of the fraudster.” “One of the strongest tools in the repertoire of retail fraudsters is actually paying the promised returns.” The perpetrator may distract the victim from asking the right questions by making the investment confusing, elaborate or technical, or focusing on red herring issues. Elder people are particularly vulnerable to retail commercial fraud because often they are lonely, “their judgment is not as sharp as it once was,” and they are afraid about their future, their finances, their dependence upon others, and their ability to care for themselves.
Many investor victims testified at trial about the losses they suffered by entrusting their money to defendants. For example, Clayton Olson was a 69-year-old retired mail carrier at the time he invested in the Northwoods Resort at Big Bear. Olson first attended a Heath & Associates seminar at a Sizzler restaurant in Hemet, in a room full of senior citizens. In a private consultation, Heath advised Olson and his wife that Heath & Associates would pay better interest than the Olsons’ existing Franklin Funds annuity. Heath promised the term of the investment would be only five years. Five years later, the Olsons tried to withdraw their money many times, but Heath said they had committed the money for ten years.
Alberta Overbey was a 72-year-old retiree when she invested almost all her money in PCM, after attending a Heath & Associates free luncheon seminar at a Marie Callender’s restaurant, along with about 20 other senior citizens. Heath had Overbey sign a letter (written by Heath) to her former financial advisor telling him not to contact her again.
Michalina Ferrell was a 75-year-old widow when she met with O’Brien for a private consultation. O’Brien seemed honest and trustworthy; he even discussed religion and philosophy with Ferrell. The only investment O’Brien offered Ferrell was PCM “guaranteed” notes. He helped her cash in her annuities so she could invest in PCM; O’Brien said an investment in PCM was as safe as an annuity, but earned more interest.
The testimony of Olson, Overbey, Ferrell, and many other victims showed that defendants targeted senior citizens, pretended to be independent financial advisors, and assured the prospective investors that the investments were safe. Defendants often did not provide any documentation for the corporate notes besides marketing materials and brochures. Defendants did not disclose: that investors’ money would be invested in unprofitable, start-up, and/or Heath-owned companies; that new investor money would be used to pay old investors; that Heath & Associates had received desist and refrain orders (described in more detail below); or that the securities were not qualified with state or federal agencies. If investors had known this information, they would not have given their money to defendants for investment.
Monies borrowed by PCM were commingled and loaned to various Schlarmann entities and other companies without Uniform Commercial Code 1 (UCC-1) financing statements to secure them.

Securities Law Violations
1. Expert Testimony on Federal and State Securities Laws
Martin Murphy, attorney and assistant regional director of the SEC, testified that federal securities law regulates the offer and sale of securities (including notes) and generally requires an issuer to make disclosures in a prospectus filed with the SEC and delivered to the customer, which includes all material information a reasonable investor would want to know. One exemption from this disclosure requirement applies to a private placement, i.e., a nonpublic offering, where the offer is not made to the public (e.g., by advertisement, publication, solicitation, circular, or public seminar) and the security is sold to no more than 35 people (other than accredited investors, i.e., purchasers meeting certain income and net worth requirements or preexisting clients) who receive some limited disclosures. The issuer must make a notice filing of the private placement with the SEC. Brokers and dealers, as defined in the applicable statute, are generally required to register with the SEC.
Raymond Burg, a retired supervisory attorney with the Department of Corporations, testified that while “federal securities law is basically a disclosure statute,” California securities law has a higher standard and requires that an offering be “fair, just and equitable to both [the] prospective investor and to the public at large.” In order to make a qualified public offering in California, a start-up company, having no track record, would have to show an adequate business plan demonstrating foreseeable profitability within the next three years in a financial forecast prepared by a certified public accountant. A “blind pool company,” whose planned business is to invest investors’ money in unspecified future projects, would not be qualified to offer and sell securities in California. Nor would a permit be issued for a start-up company which intends to use new investor money to pay interest to old investors, as that would be considered fraudulent and a Ponzi scheme. Under California law, a securities transaction may be exempt from qualification if it is a private offering under Corporations Code section 25102, subdivision (f). A private offering is made with no public advertising and to no more than 35 investors (who must each have a prior personal or business relationship with the issuer), other than purchasers meeting certain net worth requirements or who are officers or directors of the issuer. Under the statutory concept of “integration,” the 35-investor limit cannot be avoided by creating separate artificial funds for a “common scheme of financing for one business plan.” Public advertising includes telemarketing, brochures, seminars, and radio and newspaper advertisements. In addition, brokers and dealers are required to obtain a license from the Department of Corporations.
Based on Burg’s review of the receiver’s report, promotional materials, a limited partnership agreement, a videotape of a seminar presentation, and a “purported” state securities filing, he opined defendants would have been denied a permit because they lacked: any audited financial statements; an adequate track record or financial forecast; and any evidence of disclosures to investors (including disclosure of the desist and refrain orders discussed below). He further opined the transactions were not private offerings because the elderly investors did not meet the prior personal or business relationship criteria, Heath used public advertising, and many offerings were integrated. He also opined Heath & Associates acted as a broker-dealer selling securities of the issuer, PCM.
Burg testified that a desist and refrain order from the Department of Corporations notifies an issuer that it must stop selling unqualified and nonexempt securities, and notifies investors of their right to sue for rescission of the transaction. Unless the order alleges a crime, it does not prohibit the issuer from legally selling securities in the future (i.e., through licensed broker-dealers selling qualified or exempt securities or engaging in exempt transactions), so long as the existence of the order is disclosed to future investors.

2. Violations by Defendants
To raise the initial $12 million for the Northwoods Resort project, Heath suggested the money be raised in six private placements, each limited to 35 persons, selling interests in six separate limited partnerships. If the hotel was successful, Heath and Schlarmann (and to a much lesser extent, three other persons) would reap the profits, while the investors would simply be paid back on their notes with the promised interest.
In the mid-1990’s, Heath and Schlarmann consulted with a securities lawyer for the first time. The attorney, Ronald Lazof, told them the investments they were offering were securities. The attorney said they had violated the securities law and, to achieve compliance, could refund all the investment money and start again. He advised them of the legal requirements for a private placement, including the limit of 35 accredited investors, the concept of integration, and the prohibition on advertising. He told them that with Northwoods Resort, they had essentially asked investors to provide venture capital and should have given them at least a majority controlling interest and a preferred return. Defendant told Schlarmann that the investors would not buy equity interests, as opposed to debt instruments, because they wanted an income stream.
In March 1998, the Department of Corporations served two desist and refrain orders on Heath, Heath & Associates, PCM, and two other entities enjoining them from selling unqualified securities and acting as unregistered brokers or dealers. In a stipulated settlement, Heath waived his right to a hearing or an appeal, but did not admit any violation or liability, and the Department of Corporations stipulated the desist and refrain orders did not prevent Heath and the entities from offering or selling properly qualified or exempted securities.
In early 2003, First Trust was the trustee for the individual retirement accounts (IRA) of about 860 persons who had investments or representatives associated with Heath & Associates or PCM. First Trust had no investment discretion, but instead took direction from account holders on what investments they had chosen and who they had appointed as an agent. Heath was the financial representative on 221 accounts and O’Brien on 253 accounts.
In February 2003, James Hoy, deputy general counsel for First Trust, reviewed a letter from a law firm whose client had been trying in vain for over a year to get information from Heath about liquidating an investment. The letter mentioned desist and refrain orders. Hoy had trouble contacting Heath, but finally reached him. Due to Hoy’s concerns about the desist and refrain orders and Heath’s lack of responsiveness and failure to provide updated offering materials, First Trust put a freeze on new accounts or purchases of investments sponsored by Heath. Hoy received a private placement memorandum associated with PCM which said some of the interest paid to current investors would come from subsequent investors’ money and which did not disclose the desist and refrain orders. Hoy found no documentation of compliance with the desist and refrain orders.
To learn more about the desist and refrain orders, Hoy set up a conference call between First Trust and Heath and their respective attorneys. A transcript of the tape-recorded call was played for the jury, including Heath’s explanation of why (in his view) the orders had no basis and why he could not be ordered to stop doing something that was legal.
In March 2003, First Trust sent a letter to all investors notifying them of the desist and refrain orders. Many investors asked Heath & Associates for their money back. Heath & Associates’ office manager and other staff were instructed to tell investors “that everything had been taken care of,” and if an investor still wanted to speak to a representative, to take a message and let the investor speak in more detail with a representative. Heath and O’Brien told employees and investors that the desist and refrain orders had been “all cleared up” and there had been no basis for the orders. Heath & Associates found a new IRA administrator and pressured employees to get sales up.
In July 2003, Rose Hardy, investigator of consumer complaints for the Department of Insurance, advised Heath that the department had received complaints about his agency and would need assurances he was not guilty of elder abuse. Heath eventually responded to her and asserted that his investments and salespersons were exempt from the securities rules.
In April 2004, the SEC filed a lawsuit against Heath and O’Brien.

The Defense Case
Several co-workers testified on O’Brien’s behalf that he seemed to be simply a sales representative and not a supervisor, manager, or officer of Heath & Associates. Heath, rather than O’Brien, was often the main speaker at seminars. Heath testified he told O’Brien a securities license was not necessary, and that PCM was exempt from licensing and registration requirements.
Heath testified at length in his own defense. While working at Foresters, he acquired an insurance license and a securities license. In the 1980’s, he met Schlarmann at church. After Mike Allen defaulted on the Bear Manor loan, Heath met with each investor and disclosed “what was going on with the property” and that payments would be suspended. Payments were eventually resumed. Because Schlarmann was a licensed real estate agent, Heath believed the investments were regulated by the Department of Real Estate and were not securities.
After Foresters terminated Heath’s employment in 1991, Heath sold insurance as an independent agent; he had continued his contacts with some former Foresters clients and also employed a cold calling service. Schlarmann’s projects seemed “viable” to Heath. Heath received a fee for bringing investors to Schlarmann.
At the time Heath began raising $12 million for the Northwoods Resort venture, he still thought the transaction was regulated by the Department of Real Estate. Heath “decided to set up shop . . . as a financial services company,” opened a Heath & Associates office, and started using seminars to reach investors. He bought names of potential investors from list companies and reached them through direct mail and cold calls. He looked for people with higher income and assets who had money to invest. He funded Bear Manor’s operating losses because he and Schlarmann did not expect a brand new facility to be immediately profitable. He and Schlarmann were confident in their projects and expected them to lose money in the short run.
Heath started PCM in order to branch out from Schlarmann’s real estate projects and to start investing in medical companies as well. Heath consulted Lazof, the securities attorney, and explained he wanted to form an entity to raise funds and invest money in various projects at Heath’s discretion. Lazof did the incorporation and all necessary investment documents. Lazof told Heath he could come within an exemption from the broker-dealer registration requirement if he acted as a principal of the issuer.
When the Department of Corporations (the Department) served Heath with desist and refrain orders, Heath met with an attorney named Mark McDonald. McDonald told the Department that Heath believed he had complied with securities exemptions since 1995, based on the work of attorney Lazof, and that Heath planned to continue to do so. The Department replied that if Heath was complying with an exemption, he could continue making offerings. Heath did not admit any violation of any statute in the stipulated settlement.
Heath then received a letter from the district attorney notifying him he was being investigated for fraud. Heath again consulted McDonald. The investigator closed the investigation after meeting with Heath and McDonald.
By 1999, Heath felt PCM had grown to such an extent, he needed to go to the next level, incorporate it, and make it a successful investment fund. He consulted a law firm about doing a $100 million public offering to take advantage of the coming growth period in real estate.
Heath did not tell O’Brien about the desist and refrain orders until 2003 when First Trust sent its notification letter to investors; Heath explained he had thought the issue was resolved and he was working with attorneys to settle it again. Although Heath knew that new investor money was being used to fund operational shortfalls and debt service, he did not share this information with O’Brien.
Heath was adamant he had intended to return the investors’ money to them eventually.

Prosecution Rebuttal
Lazof testified he prepared incorporation and stock issuance documents for PCM. He would never have told a client that these documents could be used to pursue a public offering through telemarketing or selling older people secured corporate notes as the best investment.

DISCUSSION

No Charges Are Barred by the Statute of Limitations
Heath contends that 187 counts against him are barred by the statute of limitations either as a matter of law or of insufficient evidence. O’Brien makes the same contention about 31 counts against him. Defendants contend the four-year limitations period began running no later than March 30, 1998, when the Department issued desist and refrain orders against Heath and the related entities, thereby demonstrating its knowledge or suspicion of their wrongdoing. Because the prosecution of this case started on June 30, 2004 (§ 804), defendants contend all crimes dated before June 30, 2000 are barred by the statute of limitations.
Section 803, subdivision (c)(1) lists fraud-related offenses for which the statute of limitations is tolled until the crime is discovered. Included in that list are four crimes of which defendants were convicted: grand theft, elder theft, securities fraud, and sales of unqualified or nonexempted securities. (§ 803, subd. (c)(1), (3), & (11); People v. Fine (1997) 52 Cal.App.4th 1258, 1266 [§ 803, subd. (c) applies to violation of Corp. Code, § 25110].) The limitations period for these crimes is four years after “discovery of the commission of the offense,” or four years after completion of the offense, whichever is later. (§ 801.5.)
The discovery rule is tempered, however, by a court-created duty imposed on the victim and law enforcement to exercise reasonable diligence to investigate suspicious circumstances. (People v. Swinney (1975) 46 Cal.App.3d 332, 343, 344 (Swinney), overruled on another point in People v. Zamora (1976) 18 Cal.3d 538, 563, fn. 25 (Zamora).[6] Otherwise, the statute of limitations could be indefinitely deferred. (Ibid.) Accordingly, the limitations period starts running on “the date either the victim or law enforcement personnel learn of facts which, when investigated with reasonable diligence, would make that person aware a crime had occurred.” (People v. Kronemyer (1987) 189 Cal.App.3d 314, 330-331.) “The crucial determination is whether law enforcement authorities or the victim had actual notice of circumstances sufficient to make them suspicious of fraud thereby leading them to make inquiries which might have revealed the fraud.” (Zamora, at pp. 571-572.)
The prosecution must prove by a preponderance of the evidence that reasonable diligence by the victim or “the responsible law enforcement authorities” would not have led to earlier discovery (Swinney, supra, 46 Cal.App.3d at p. 344) — “a negative proposition” (Zamora, supra, 18 Cal.3d at pp. 564-565, fn. 26).[7] “[T]he prosecution is entitled to prevail at trial even if the evidence is conflicting . . . if the fact finder believes the prosecution’s evidence and that finding is supported by substantial evidence.” (Lopez, supra, 52 Cal.App.4th at p. 250.) “The jury’s findings on the ‘discovery’ issue [are] on questions of fact and on appeal they are tested by the substantial evidence standard.” (Zamora, at p. 565.)
Here, the court instructed the jury that defendants could not be convicted of elder abuse, grand theft, securities fraud, sale of unqualified securities, and illegal sale of securities after receiving a desist and refrain order, “unless the prosecution began within four years of the date the crimes were discovered or should reasonably . . . have been discovered.” The court further instructed the jury that the prosecution for the crimes began on June 30, 2004 and that “[l]aw enforcement include[s] investigators of the investor Department of Corporations, . . . provided that the primary duty of these investigators shall be the enforcement of the provisions of law administered by the [Department].”[8]
Defendants assert the Department’s issuance of desist and refrain orders on March 30, 1998 establishes that date as the latest possible discovery point as a matter of law, because the Department must have known of facts which, if investigated with reasonable diligence, would have uncovered their crimes. Heath argues “the question is . . . whether the Department of Corporation’s actual notice that [he] offered or sold unqualified securities to three different people was sufficient notice of the possibility of the commission of the sale of unqualified securities, theft, and of securities fraud against” other people.
But to answer Heath’s question, we must first try to ascertain the substance and scope of the Department’s “actual notice.” What did the Department actually know at the time it issued the desist and refrain orders and entered into a stipulation with Heath‌ As we shall explain, the evidence conflicts on whether the Department knew, or had reason to suspect, defendants had sold securities that were not only unqualified, but also nonexempt.
According to Heath, the evidence revealed that three complainants were “involved” in the issuance of the orders, but did not show “when those complaints were made, what they were specifically, or what investigation was conducted. There was no evidence presented on this subject at all.” Heath cites no evidence supporting his assertion of “three complainants”; rather, he refers us to the People’s closing argument, where the prosecutor stated: “In [1998] the Department of Corporations has a complaint or two or three. . . . In some of the paperwork Irene Gabor was one of the names [complaining that] this person sold me an unqualified security.”[9] Although it is undisputed that these complainants were not named victims in this case, defendants assert these complaints should have made the Department suspicious that defendants might be defrauding other persons beyond the alleged three complainants.
Evidence of what the Department might have known is also contained in the two desist and refrain orders themselves. One order stated: “Pursuant to Section 25532 of the California Corporate Securities Law of 1968, you are hereby ordered to desist and refrain from the further offer or sale in the State of California of securities, including but not limited to notes, limited partnership interests or limited liability company interests, for the reason that, in the opinion of the Commissioner of Corporations . . . , the sale of such securities is subject to qualification under said law, such securities are being or have been offered for sale without first being so qualified, and the Commissioner of Corporations . . . finds that qualification of such securities is necessary or appropriate in the public interest or for the protection of investors, and is consistent with the purposes of the policy and provisions of the Corporate Securities Law of 1968.” This order supports an interpretation the Department found Heath and the entities had offered or sold unqualified securities which were required to be qualified, i.e., which were not exempt from qualification.
The other order stated: “Pursuant to Section 25532 of the California Corporate Securities Law of 1968, you are hereby ordered to desist and refrain from acting as a broker-dealer in the State of California unless and until you have been licensed as such under said law or unless exempt, for the reason that, in the opinion of the Commissioner of Corporations . . . , you are acting or have acted as a broker-dealer in violation of Section 25210, and the Commissioner of Corporations . . . finds that this Order is necessary or appropriate in the public interest or for the protection of investors, and is consistent with the purposes of the policy and provisions of the Corporate Securities Law of 1968.” This order contains the phrase “or unless exempt,” supporting an interpretation the Department did not determine Heath and the entities were necessarily required to be licensed.
Heath and the entities were entitled to an administrative hearing to challenge the Commissioner’s opinions. (Corp. Code, § 25532, subd. (d).) In lieu of a hearing, the Department and Heath (individually and on behalf of the entities) executed a stipulation in May 1998, in which (1) Heath and the entities withdrew their request for an administrative hearing and waived any right to appeal the desist and refrain orders, but “admit[ted] no violation, liability, fault or breech [sic] of any statute, regulation or order”; (2) the Department stipulated that nothing in the desist and refrain orders was intended to prevent Heath and the entities “from offering and selling any security pursuant to a qualification or to any exemption from the qualification requirement under the Corporations Code”; and (3) the Department stipulated that nothing in the desist and refrain orders was intended to be a statement as to the integrity of Heath and the entities, their officers or agents, or of the investment potential of any security they might offer now or in the future, including the investments subject to the desist and refrain orders. Burg testified that this third stipulation clarified the Department had not alleged any violation of criminal anti-fraud statutes.
Heath testified about the circumstances surrounding the parties’ entering into the stipulation. Upon receiving the desist and refrain orders, he had been perplexed by the Department’s statement no exemption applied, because he believed (based on his discussions with attorney Lazof) that the securities were exempt from qualification under Corporations Code section 25102, subdivision (f) and that he and the other salespersons were exempt from broker/dealer licensing requirements under the exception for issuers of securities (again based on his talks with Lazof). Heath told attorney McDonald that he (Heath) believed the securities and salespersons were exempt. McDonald phoned Mark Harman, the attorney at the Department who was handling the case. Harman “downplayed it and said this is not some big ongoing investigation. This was a complaint we had from one woman who had invested and is really kicking up a fuss . . . and [the Department] just wanted to make sure this complaint gets taken care of.” McDonald told Harman that (1) Heath believed he was compliant with securities exemptions based on his talks with securities attorney Lazof, and (2) Heath would continue to do what he had been doing. Harman replied Heath could continue, so long as he complied with the exemptions. Heath testified the Department had not determined that he and the entities had failed to comply with the exemptions, noting the stipulation specified that he admitted no violation and that nothing in the desist and refrain orders was intended to prevent him from offering and selling securities pursuant to an exemption.
Burg, the expert witness on state securities law, testified that the orders “merely said” Heath and the entities had offered unqualified securities. The basis for this finding was that the Department had conducted a computer records search and had found no record the company had qualified “that particular type of security” even though the securities had been sold.[10]
In sum, the Department did investigate the three complaints when it discussed the matter with Heath’s counsel. The evidence provided by Heath’s counsel was sufficient to persuade the Department that defendants had sold exempt securities. By entering into the stipulation, the Department resolved the matter after an investigation. No evidence showed that defendants had engaged in theft or fraud. Substantial evidence thus supports the jury’s implied finding that in May 1998, the Department investigated the complaints with reasonable diligence but did not discover any of defendants’ crimes, and therefore the limitations period did not begin running at that time.

Defendants Were Not Prejudiced By Any Ineffective Assistance of Counsel
Defendants contend their attorneys were ineffective by failing to object to the jury instruction on the statute of limitations and on alleged prosecutorial misconduct. They assert the jury instruction defined too narrowly the Department’s role as a law enforcement agency. They assert the prosecutor falsely stated that the limitations period began running when the Department could reasonably have started an investigation in light of its heavy case load and understaffing.
To prove an ineffective assistance claim, a defendant must show that
(1) “counsel’s performance was deficient,” and (2) “the deficient performance prejudiced the defense.” (Strickland v. Washington (1984) 466 U.S. 668, 687, 692.) A court need not “address both components of the inquiry if the defendant makes an insufficient showing on one.” (Id. at p. 697.) To prove prejudice, a “defendant must show that there is a reasonable probability that, but for counsel’s unprofessional errors, the result of the proceeding would have been different. A reasonable probability is a probability sufficient to undermine confidence in the outcome.” (Id. at p. 694.) “When a defendant challenges a conviction, the question is whether there is a reasonable probability that, absent the errors, the factfinder would have had a reasonable doubt respecting guilt.” (Id. at p. 695.)
Because we conclude substantial evidence showed the Department was not put on notice in 1998 of facts triggering a duty of further investigation, and was reasonably diligent in investigating the facts then known to it, defendants did not suffer prejudice from these alleged instances of ineffective assistance of counsel.

The Desist and Refrain Orders Were Not Unconstitutionally Vague
Defendants argue their convictions for illegally selling securities after receiving desist and refrain orders (Corp. Code, § 25532) must be reversed because the orders and associated stipulation were unconstitutionally vague. As to the order concerning unqualified securities, they argue that in light of the stipulation, a person of common intelligence could reasonably believe that (1) “the Commissioner agreed that investments [defendants] might offer at that time or in the future, including the investments that were the subject of the initial orders, could be sold pursuant to an exemption despite the Commissioner’s opinion in the initial orders that the securities had not been qualified,” and (2) defendants “could offer and sell any security pursuant to an exemption, despite the opinion of the Commissioner in the initial order that [defendants] were not licensed.” O’Brien further argues he was neither named in nor served with the orders and that Heath represented to him that the orders had been taken care of, such that O’Brien received no fair warning of the potential offenses. The court denied O’Brien’s motion below for a finding the orders were unconstitutionally vague as to whether the stipulation overrode or modified the orders.
“[T]he underpinning of a vagueness challenge is the due process concept of ‘fair warning.’ [Citation.] The rule of fair warning consists of ‘the due process concepts of preventing arbitrary law enforcement and providing adequate notice to potential offenders’ [citation], protections that are ‘embodied in the due process clauses of the federal and California Constitutions. [Citations.]’ The vagueness doctrine bars enforcement of ‘“a statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application.” [Citation.]’ [Citation.] A vague law ‘not only fails to provide adequate notice to those who must observe its strictures, but also “impermissibly delegates basic policy matters to policemen, judges, and juries for resolution on an ad hoc and subjective basis, with the attendant dangers of arbitrary and discriminatory application.” [Citation.]’” (In re Sheena K. (2007) 40 Cal. 4th 875, 890.)
Under the Corporate Securities Law of 1968 (Corp. Code, § 25000 et seq.), “all offers and sales of securities in California must be qualified with the Commissioner of the [Department] unless specifically exempted. ([Corp. Code,] § 25110.) Only broker-dealers may sell securities, unless exempted. ([Corp. Code,] § 25210.) Deceptive practices, such as utilizing false or misleading statements in the purchase or sale of securities, are prohibited. ([Corp. Code,] § 25401.)” (People v. Cole (2007) 156 Cal.App.4th 452, 472.) Under Corporations Code section 25532, if the Department’s commissioner is of the opinion that (1) a security subject to qualification or to federal securities law was offered or sold without being qualified or meeting the federal securities law requirements, the commissioner may serve a desist and refrain order on the issuer or offeror of the security, and/or (2) a person has acted as a broker-dealer or investment adviser without a necessary license, the commissioner may serve a desist and refrain order on that person. (Corp. Code, § 25532, subds. (a) & (b).) The recipient of an order is entitled upon request to an administrative hearing. (Corp. Code, § 25532, subd. (d).)
Defendants’ contention is meritless. They do not argue that any particular statute is unconstitutionally vague, but rather that the combined effect of the orders and the stipulation was unclear. In fact, the effect of those documents was very clear. As stated by the People, the “orders and related settlement required Dan Heath and his employees and agents to obey the law, no more and no less.” The stipulation permitted defendants to offer and sell securities pursuant to a qualification or exemption under the Corporations Code. It made no finding that defendants had met the requirements for any exemption under the securities law. It did not (and cannot be reasonably interpreted to) authorize defendants to offer and sell securities without first qualifying them or satisfying the requirements of a statutory exemption from qualification.
As to O’Brien’s contention he did not receive personal notice of the orders and the stipulation, he was charged with violating Corporations Code section 25532 after First Trust notified investors in 2003 of the desist and refrain orders.

The Court Did Not Erroneously or Prejudicially Instruct the Jury
Defendants challenge several jury instructions given in this case. We address each challenge individually below, but first summarize the relevant law on instructional error.
A trial court bears a sua sponte duty to instruct the jury on “‘the general principles of law relevant to the issues raised by the evidence’” (People v. Breverman (1998) 19 Cal. 4th 142, 154), including the essential elements of an offense (People v. Flood (1998) 18 Cal. 4th 470, 504 (Flood)) and defenses if supported by sufficient evidence (Mathews v. U.S. (1988) 485 U.S. 58, 63). This includes the mental elements of a crime. “The prosecution has the burden of proving beyond a reasonable doubt each element of the charged offense.” (People v. Cole (2004) 33 Cal.4th 1158, 1208.) “An instructional error relieving the prosecution of its burden violates the defendant’s rights under both the United States and California Constitutions.” (Ibid.)
“‘[A]ssertions of instructional error are reviewed de novo.’” (People v. Lamer (2003) 110 Cal.App.4th 1463, 1469.) Even if the defendant failed to object below, an appellate court may review instructional error “if the substantial rights of the defendant were affected thereby.” (§ 1259.)
“An appellate court reviews the wording of a jury instruction de novo and assesses whether the instruction accurately states the law.” (People v. O’Dell (2007) 153 Cal.App.4th 1569, 1574.) “[N]o particular form is required as long as the instructions are complete and correctly state the law.” (People v. Andrade (2000) 85 Cal.App.4th 579, 585 (Andrade).)
“‘“[T]he correctness of jury instructions is to be determined from the entire charge of the court, not from a consideration of parts of an instruction or from a particular instruction.”’” (People v. Musselwhite (1998)17 Cal. 4th 1216, 1248; see also (Boyde v. California (1990) 494 U.S. 370, 378.) “‘“The absence of an essential element in one instruction may be supplied by another or cured in light of the instructions as a whole.”’” (People v. Castillo (1997) 16 Cal.4th 1009, 1016.)
In determining whether an instruction is ambiguous or misleading, the court takes into account “the specific language challenged, the instructions as a whole[,] the jury’s findings” (People v. Cain (1995) 10 Cal.4th 1, 36), and counsel’s closing arguments to determine whether the instructional error “ would have misled a reasonable jury . . . .” (id. at p. 37). “The test is whether there is a reasonable likelihood that the jury understood the instruction in a manner that violated the defendant’s rights” (Andrade, supra, 85 Cal.App.4th at p. 585), or, stated another way, applied the instruction in a way that violated the state or federal Constitution. (People v. Frye (1998) 18 Cal. 4th 894, 957, disapproved on another ground in People v. Doolin (2009) 45 Cal.4th 390, 421, fn. 22.) “‘Jurors are presumed to be intelligent, capable of understanding instructions and applying them to the facts of the case.’” (People v. Lewis (2001) 26 Cal.4th 334, 390.)
A trial court’s failure to instruct the jury on all elements of an offense is a constitutional error “subject to harmless error analysis under both the California and United States Constitutions.” (Flood, supra, 18 Cal.4th at p. 475.) In determining whether instructional error was harmless, relevant inquiries are whether “the factual question posed by the omitted instruction necessarily was resolved adversely to the defendant under other, properly given instructions” (id. at p. 485), whether the defendant effectively conceded the issue, or whether “the record not only establishes the element as a matter of law but shows the contrary evidence not worthy of consideration” (id. at p. 506).

1. The court properly instructed the jury on violation of desist and refrain orders and on securities fraud
Defendants contend the court failed to properly instruct the jury on the mental state required for the offenses of securities fraud and willful violation of a desist and refrain order. They argue the instruction did not inform the jury on the need for unity of act and intent, or that the requisite mental state would be specified in the instruction on the crime. They further argue the court did not define the elements of “willful” conduct or “criminal negligence.” They assert the allegedly improper instructions lightened the prosecution’s burden of proof.
The information charged defendants with violating Corporations Code section 25401, under which it is unlawful for any person to offer or sell a security by means of a communication “which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements . . . not misleading.” The information also charged defendants with violating Corporations Code section 25532, by willfully and unlawfully offering and selling securities after having been served with desist and refrain orders on March 30, 1998.
A person who “willfully violates” Corporations Code section 25401, or who “willfully violates” an order under the Corporate Securities Law of 1968, may be punished. (Corp. Code, § 25540, subds. (a) & (b).) These predicate offenses are therefore general intent crimes. (People v. Salas (2006) 37 Cal.4th 967, 976.) “The only intent required for a general intent offense is the purpose or willingness to do the act or omission. [Citation.] The term ‘willful’ requires that the prohibited act or omission occur intentionally.” (People v. Johnson (1998) 67 Cal.App.4th 67, 72.) But, general intent crimes additionally “ordinarily require mens rea or guilty knowledge.” (Salas, at p. 976.)
The court instructed the jury with a modified version of CALCRIM No. 252, stating in relevant part as follows: “The crimes and or other allegations charged in the Information require proof of the union or joint operation of act and wrongful intent. . . . [¶] The following crimes and-or other allegations require a mental state. [¶] Offer or sale of security after desist and refrain order under Corporation[s] Code Section 25532. [¶] Securities fraud under Corporation[s] Code Section 25401. [¶] The mental state required for the crime of offer or sale of security after desist and refrain order is knowledge of the desist and refrain order. [¶] The mental state required for the crime of securities fraud is knowledge of the false or misleading nature of the statement or materiality of the omission or criminal negligence in failing to investigate and discover the true facts.”
Defendants’ challenge to the foregoing instruction is meritless. The instruction’s introduction states that all “crimes and or other allegations charged in the Information require proof of the union or joint operation of act and wrongful intent.” As to securities fraud and willful violation of a desist and refrain order, the instruction states that these crimes require a mental state and then describes the requisite mental state for each offense.
Furthermore, the jury was amply instructed on willfulness and criminal negligence. First, the court instructed the jury on these concepts, albeit in the context of Corporations Code section 25110 sale of unqualified or nonexempt security, as follows: “Someone commits an act willfully when he or she does it willingly or on purpose. It is not required that he or she intend to break the law, hurt someone else, or gain any advantage. [¶] . . . [¶] A defendant who is criminally negligent in failing to investigate and discover the non-exempt status of the security does not have a reasonable and good faith belief the security was exempt. [¶] Criminal negligence means conduct which is more than ordinary negligence. Ordinary negligence is the failure to exercise ordinary or reasonable care. [¶] Criminal negligence refers to negligence [sic] acts which are aggravated, reckless, or flagrant, and which are such a departure from the conduct of an ordinarily prudent careful person under the same circumstances as to constitute indifference to the consequences of those acts.” Although this instruction did not apply specifically to securities fraud or willful violation of a desist and refrain order, the court instructed the jury to “[p]ay careful attention to all these instructions and consider them together.”
As to securities fraud specifically, the jury heard much discussion of criminal negligence. The court instructed the jury on the elements of securities fraud, including that “the People must prove . . . . [¶] . . . [¶] the person either: [¶] A, knew the falsity or misleading nature of the statement or materiality of the omission. [¶] Or B, was criminally negligent in failing to investigate and discover the true fact.”
The attorneys’ closing arguments further illuminated the jury’s understanding of these concepts. In the prosecutor’s clos