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SUPREME COURT OF LOUISIANA

No. 95-KA-2307

STATE OF LOUISIANA Versus WILLIAM EARL POWDRILL, III & UWE SCHMIDT

ON DIRECT APPEAL FROM THE 1ST JUDICIAL DISTRICT COURT, PARISH OF CADDO, STATE OF LOUISIANA

JOHNSON, Justice*
This case was brought before the court on direct appeal pursuant to La. Const. Art. V, Sec. 5(D) to determine whether certain provisions of the Louisiana Securities Law are unconstitutional. For the reasons stated herein, we affirm the trial court's finding that La. R.S. 51:712(A)(2) is unconstitutional as applied in the criminal context in that it impermissibly places the burden of proof upon defendants. We reverse the trial court's finding that La. R.S. 51:721(A) and (B) are unconstitutional.

FACTS AND PROCEDURAL HISTORY On April 22, 1994, defendants William Earl Powdrill, III, a sales representative for the Biedenharn Investment Group, Inc. (B.I.G.), and Uwe Schmidt, vice president of B.I.G., were indicted on 20 and 11 counts respectively, for violating several provisions of the Louisiana Securities Law, formerly known as the Blue Sky Laws.2 La. R.S. 51:701 et seq. Defendants were licensed as securities salesmen for B.I.G., a small stock brokerage firm headquartered in

Pursuant to Rule IV, Part 2, Section 3, J. Victory was not on panel. The panel consisted of Justice Johnson, Chief Justice Calogero, and Justices Bleich, Kimball, Lemmon, Marcus and Watson.
James McCurry, president of B.I.G. was also indicted on 39 counts for various violations of these same laws. On July 6, 1995, McCurry pled nolo contendere to a single violation of La. R.S. 51:712(D)(2). In exchange for this plea, the remaining 38 counts were dropped.
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Shreveport, Louisiana. During the course of their employment, defendants sold or offered to sell, promissory notes issued by Towers Financial Corporation of New York City (hereinafter, Towers) to numerous investors, most of whom were primarily located in Northern Louisiana. The bill of indictment alleges that defendants, on behalf of B.I.G. sold or offered to sell promissory notes on behalf of Towers between January 1988 and February 1993 in violation of Louisiana's securities laws.3 Specifically, defendants were charged with selling the notes at interest rates higher than the rates stated in the offering documents, selling the notes by means of false statements, making false statements regarding the investor's net worth, and falsifying balance sheets indicating that the investor was accredited. B.I.G. was the only broker-dealer in Louisiana licensed to sell the Towers product. In February, 1993, the Towers empire collapsed. The B.I.G. investors who had purchased these notes from Towers received their last interest payment at that time, and were neither paid further interest on their investments, nor repaid the principal sum of their investments. Powdrill has been charged under La. R.S. 51:712(A)(2) (five counts) with deliberately making false and/or misleading material oral statements to five investors. Powdrill allegedly stated that the notes were safe, and that there was no reason to expect that the investors could lose their principal investments. Schmidt was charged under La. R.S. 712(A)(2) with deliberately making false and/or misleading material oral statements to investors, all of which allegedly led these investors to conclude that the notes were safe, and that there was no reason to believe that the investors could lose their principal sums. Schmidt was also charged with giving one of the investors written materials to reinforce confidence in the Towers investment, said materials containing false and/or misleading information. On July 20, 1995, prior to trial, defendants filed a motion to quash the indictment. The trial court ruled in favor of defendants holding that La. R.S. 51:712(A)(2) and La. R.S. 51:721(A) & (B) of the Louisiana Securities Law are unconstitutional. The trial court found that La. R.S. 712(A)(2) and 721(A) impermissibly placed the burden of proof upon defendants in violation of In re Winship, 397 U.S. 358, 90 S.Ct. 1068 (1970), and that La. R.S. 721(B) denied defendants

Pursuant to La. R.S. 51:702(15)(a), promissory notes are considered securities for purposes of the Louisiana Securities Law. 2

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their constitutional right of confrontation. The state appealed these rulings directly to this court pursuant to La. Const. Art. V, Sec. 5(D).

BACKGROUND The first securities act was adopted in Kansas in 1911. Comment, Steven M. Axler, "The Blue Sky Laws of Louisiana", 41 Loy.L.Rev. 1 (1995). The notion of securities regulations rapidly spread and by 1929, virtually every state had some form of securities regulation. Id. These statutes were known as "blue sky laws" after a Supreme Court decision describing their purpose as the prevention of "speculative schemes which have no more basis than so many feet of blue sky." Id. Louisiana enacted its first blue sky law in 1920. Landry v. Thibaut, 523 So.2d 1370, 1379 (La. App. 5th Cir.), writ denied, 526 So.2d 809 (La. 1988). As evidenced by the stock market crash of 1929, these statutes were inadequate in combatting schemes involving interstate commerce. As a consequence of the failures of the various states' blue sky laws, federal securities laws were enacted. Comment, Steven M. Axler, "The Blue Sky Laws of Louisiana", 41 Loy.L.Rev. 1 (1995). The purpose of the Securities Act of 1933 is to provide full and fair disclosure of the character of securities sold in interstate commerce, and to prevent fraudulent sales of the same. See Preface to Securities Act of 1933, Pub. L. No. 22-73d, 48 Stat. 74 (1933) (Codified at 15 U.S.C.

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