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Securities Administrator v. Richard
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Decision:	1997 ME 144
Docket:	Ken-97-192
Argued:	June 16, 1997
Decided:	July 1, 1997




	[¶1]  Paul Richard{1} appeals from the judgment of the Superior Court
(Kennebec County, Marden, J.) finding him in contempt of orders entered
in May (Atwood, J.) and August 1996 (Calkins, J.), and incarcerating him
until he submits an accounting of his sales of certain securities.  Richard
contends that the court erred by determining that he waived his right to
assert his privilege against self-incrimination, U.S. Const. amends. V, XIV, in
response to its orders that he provide an accounting, and that the court
abused its discretion by finding him in contempt of those orders.  We
disagree and affirm the judgment. 
	[¶2]  In March 1996 the State filed a nine-count civil complaint
alleging violations of the Revised Maine Securities Act, 32 M.R.S.A.
§§ 10101-10713 (1988 & Supp. 1996), against HER, Inc., Paul Richard,
Steven A. Hall, and David J. Hall.  The only party to this appeal is Richard,
who was charged with offering and selling securities within Maine that were
neither registered nor exempt from registration pursuant to section 10401
and, as a treasurer and therefore a "control person" pursuant to section
10602(3), with being secondarily liable for the material misrepresentations
allegedly made by the Halls, who were charged pursuant to section
	[¶3]  The State also sought a temporary restraining order and a
preliminary injunction to enjoin the defendants from selling unregistered
securities.  In March the court issued the temporary restraining order and
set the matter for a preliminary injunction hearing.  Attached to the State's
preliminary injunction motion was an affidavit of the Securities Division's
chief investigator stating that, before filing suit, the Division had sought a
complete accounting and an assurance that the defendants would stop
selling unregistered securities, and had received only an inadequate
accounting and false assurances in response.  On the eve of the preliminary
injunction hearing, Richard informed an investor in a rescission letter that
"[t]here is a possibility that I may have sold securities in violation of the
Revised Maine Securities Act, including Sections 10201, 10301, 10401." 
Richard did not invoke his Fifth Amendment privilege against self-
incrimination in response to the State's motions.  After the preliminary
injunction hearing, he objected to the accounting only on the ground that it
was an inappropriate remedy, without mentioning his Fifth Amendment
	[¶4]  In May the court issued the preliminary injunction, finding that
Richard and the other defendants had violated and were continuing to
violate 32 M.R.S.A. § 10401 by selling unregistered securities.  The court
ordered each of the defendants to produce within ten days an accounting

the amounts, location and nature of all the proceeds of all sales of
notes or other evidences of indebtedness issued by HER, Inc., and/or
by Paul Richard (and all assets derived from those proceeds[)]; and, by
name, address and telephone number, all known investors in notes or
other evidences of indebtedness issued by HER, Inc., and/or Paul
Richard, the date upon which each investment was made, the amount
invested by each investor and the total amount of principal owed to
each investor.

In June 1996 the State filed its first motion for civil contempt in response
to the defendants' failure to submit such accountings within the court's
deadline.  At the motion hearing in August, Richard agreed to provide the
accounting within ten days, and the court ordered him to do so.  In
September, in his capacity as treasurer of HER, Inc., Richard submitted an 
accounting, which he failed to supplement after the State notified him of its
inadequacy.  In December the State filed a renewed motion for civil
contempt contending that the accounting filed by Richard was "vague" and
"incomplete," with "hundreds of thousands of dollars [of transactions]
unaccounted for."  In his objection, Richard raised for the first time his Fifth
Amendment privilege against self-incrimination and requested a hearing to
determine his right to assert the privilege and thereby declined to provide
the accounting.  
	[¶5]  Prior to and at the hearing in January on the State's motion,
Richard requested that the court take testimony before making a
determination of the validity of his Fifth Amendment privilege.  The court
declined to do so.  In February the court found Richard in contempt of both
the preliminary injunction issued in May and the follow-up order issued in
August, and ordered him committed to the Kennebec County jail until he
submitted a complete accounting.   
	[¶6]  Richard filed a motion to alter the judgment, arguing that he was
entitled to an evidentiary hearing before a contempt order issued, and for a
stay pending that hearing.  The court granted the stay and held a hearing to
determine whether Richard had the right to invoke his Fifth Amendment
privilege.  At the hearing Richard presented evidence allegedly showing that
a series of events subsequent to September 1996 demonstrated that the
State intended to prosecute him for criminal wrongdoing pursuant to
section 10604(1) of the Act, thereby creating in him for the first time
reasonable apprehension of criminal prosecution warranting his assertion of
his Fifth Amendment rights in response to the State's December motion for
	[¶7]  In March the court issued an order finding that Richard had
failed to establish a valid objection pursuant to the Fifth Amendment, that he
had not asserted the privilege in good faith because he "continues to engage
in [the activities which have been specifically enjoined]," that he had been
willing to submit an incomplete accounting thereby "disclosing some
transactions and not others," that none of the State's statements or
activities altered the possibility pursuant to the "circumstances of the
allegations of the complaint and all of its implications" that he would be
subject to a criminal prosecution, that he had waived his Fifth Amendment
rights "on at least two occasions," and that he would be incarcerated as of
April 15, 1997 and remain so until he produced "the accounting ordered in
the preliminary injunction."   
	[¶8]  Richard filed an appeal of the contempt order with us, and filed a
motion in the Superior Court for a stay pending the appeal, arguing that
although the accounting he submitted may not have been "complete," there
had been no hearing to determine whether the accounting was inadequate. 
After an evidentiary hearing in April 1997, the court found that the
accounting produced, although signed by Richard, was insufficient as to his
individual activities. The court also ruled that Richard's conduct otherwise
had been contumacious, denied his motion for a stay pending appeal, and
ordered him incarcerated until he produced an adequate accounting. 
Richard's subsequent motion to us for a stay pending appeal was denied,
although he was granted an expedited schedule for the briefing and hearing
of this matter. 
	[¶9]  When application of the final judgment rule would not further its
purpose, we have not hesitated to apply the "few, narrow and well-defined"
exceptions to that rule.  Department of Human Servs. v. Lowatchie, 569 A.2d
197, 199 (Me. 1990).  In this instance, when a failure to review the court's
contempt order would both "preclude any effective review" and "result in
irreparable injury," we review the court's contempt order pursuant to the
"death knell" exception to the final judgment rule.  State v. Maine State
Employees Assoc., 482 A.2d 461, 463-64 (Me. 1984).             	
	[¶10]  We review a court's civil contempt order for an abuse of
discretion, and the underlying factual determinations for clear error.  Weiss
v. Brown, 1997 ME 57, ¶ 7, 691 A.2d 1208; McKinley v. McKinley, 651 A.2d
821, 824 (Me. 1994).  A court's finding is clearly erroneous only if there is
no competent evidence in the record to support it.  Zink v. Zink, 687 A.2d
229, 232 (Me. 1996). 
	[¶11]  The Fifth Amendment to the United States Constitution
declares in part that "[n]o person . . . shall be compelled in any criminal case
to be a witness against himself."  That "guarantee against testimonial
compulsion,"  Hoffman v. United States, 341 U.S. 479, 486 (1951), is
applicable to the states through the Fourteenth Amendment, Malloy v.
Hogan, 378 U.S. 1, 6 (1964).  The Fifth Amendment privilege "can be
asserted in any proceeding, civil or criminal, administrative or judicial,
investigatory or adjudicatory,"  Kastigar v. United States, 406 U.S. 441, 444
(1972), and applies to the compelled preparation of incriminating
documents, United States v. Doe, 465 U.S. 605, 610-11 (1984).  The
privilege "not only extends to answers that would in themselves support a
conviction . . . but likewise embraces those which would furnish a link in the
chain of evidence needed to prosecute the claimant."  341 U.S. at 486
(citation omitted); see also State v. Linscott, 521 A.2d 701, 703 (Me. 1987)
(whether criminal investigation has commenced is irrelevant to claim of
Fifth Amendment privilege).  This protection, however, is confined to
instances in which there is reasonable cause to apprehend such danger from
a direct answer.  341 U.S. at 486; Collett v. Bither, 262 A.2d 353, 358 (Me.
1970).  For a court to sustain a claim of the privilege against self-

it need only be evident from the implications of the question, in the
setting in which it is asked, that a responsive answer to the question
or an explanation of why it cannot be answered might be dangerous
because the injurious disclosure could result.  The trial judge in
appraising the claim, must be governed as much by his personal
perception of the peculiarities of the case as by the facts actually in

341 U.S. at 486-87 (quotation omitted) (quoted in State v. Robbins, 318
A.2d 51, 56-57 (Me. 1974)).  The privilege must be asserted in good faith. 
Hinds v. John Hancock Mutual Fire Ins. Co., 155 Me. 349, 375, 155 A.2d
721, 736 (1959).     
	[¶12]   The Fifth Amendment privilege against self-incrimination is to
be "accorded liberal construction in favor of the right it was intended to
secure." Hoffman, 341 U.S. at 486.  However, "the great constitutional
safeguard against self-incrimination was never intended to be used as a
means of avoiding disclosure of the truth by [those] who only pretend a fear
of proving themselves guilty of a crime," Robbins, 318 A.2d at 59 (citing
Hinds, 155 Me. at 372, 155 A.2d at 734), nor to serve as an obstacle to
litigation's truth-seeking function when there is no real specter of criminal
prosecution and therefore of self-incrimination.  Such abuses are controlled
by the law of waiver.  The privilege is not ordinarily self-executing, it must
be affirmatively claimed when self-incrimination is threatened, and a
defendant may lose its benefit inadvertently, without making a knowing and
intelligent waiver, simply by failing to invoke it.  Minnesota v. Murphy, 465
U.S. 420, 427-28 (1984) (quotation omitted); cf. Colorado v. Spring, 479
U.S. 564, 572-73 (1987) (in custodial interrogation context Fifth
Amendment waiver must be knowing, intelligent, and voluntary).  The
general obligation to appear and answer questions truthfully does not in
itself convert a defendant's or witness's otherwise voluntary statements into
compelled ones within the meaning of the Fifth Amendment, and "the
incriminating nature of a question, by itself, [does not excuse] a timely
assertion of the privilege."  Murphy, 465 U.S. at 427-28 (collecting cases
involving variety of criminal and noncriminal investigations in which this
principle has been applied).{3}  "[I]f a witness chooses to answer, his choice is
considered to be voluntary since he was free to claim the privilege and
would suffer no penalty as the result of his decision to do so," id. at 429; he
will not be in a position later to complain that he was compelled to give
testimony against himself, United States v. Kordel, 397 U.S. 1, 10 (1970).  
	[¶13]  Pursuant to the standards just discussed, and because it is
supported by competent evidence in the record, the court's determination
that Richard had waived his Fifth Amendment privilege against self-
incrimination was not clearly erroneous.  In its March 1997 order the court
asserted that Richard had "waived his right to the privilege of the Fifth
Amendment on at least two occasions . . . ."  Given the facts as set forth by
the court, we treat this as a finding that Richard first waived his Fifth
Amendment rights when he failed to invoke them in response to the State's
requests for an order to provide an accounting, made in its simultaneous
motions for a temporary restraining order and a preliminary injunction filed
in March 1996.{4}  Richard's argument that he could not have invoked the
privilege because he had no reasonable apprehension at that juncture that
his submission of an accounting could lead to a criminal prosecution is not
  	[¶14]  First, Richard was sued directly for selling unregistered
securities.  Both the affidavit of the Securities Division's chief investigator
filed in support of the motion for a temporary restraining order, and the
preliminary injunction hearing testimony, indicate that months before filing
its complaint the State had notified Richard that he had violated the Revised
Maine Securities Act and warned him repeatedly to stop selling
unregistered securities.  The evidence indicates he did not heed that
warning.  The Act's criminal penalties apply to any knowing violation of its
provisions, 32 M.R.S.A. § 10604(1), including that which prohibits the sale
of unregistered securities, 32 M.R.S.A. § 10201.   The accounting sought by
the State required Richard to submit information concerning his securities
sales and the disposition of the proceeds of those sales, information relevant
to the very securities provisions he was alleged to have violated.  Thus, by
the time of the preliminary injunction hearing it would have been reasonable
for Richard to apprehend that his submission of the accounting "would
furnish a link in the chain of evidence needed to prosecute the claimant for
a . . . crime."{5}  Hoffman, 341 U.S. at 486 (citation omitted).  Richard
therefore waived his Fifth Amendment privilege by failing to raise it in
objection to the accounting when first sought by the State.  Murphy, 465
U.S. at 427-28.  
	[¶15]  In addition, Richard was sued indirectly for securities fraud as a
"control person" of HER, Inc., who is liable for such violations of the Act
unless he "proves that [he] did not know, and in the exercise of reasonable
care could not have known, of the existence of the facts" concerning the
corporation's alleged securities fraud.  32 M.R.S.A. § 10602(3).  As noted, in
a rescission letter written on the eve of the preliminary injunction hearing,
Richard informed an investor that "[t]here is a possibility that I may have
sold securities in violation of the Revised Maine Securities Act, including
Sections 10201, 10301, 10401."  This letter demonstrates Richard's
acknowledgment even prior to the hearing that he might have violated the
fraud provisions of the Act, 32 M.R.S.A. § 10201, and it reflects an
awareness of the statutory scheme as a whole.  Richard should also have
been aware of his potential liability for fraud given the evidence the State
introduced at the preliminary injunction hearing concerning the fraudulent
activities of two other defendants, which nearly mirrored that introduced
against Richard at subsequent hearings.
	[¶16]	Moreover, Richard cannot properly invoke his Fifth Amendment
privilege for the first time in response to a motion for contempt, much less
in response to a second such motion.  See United States v. Rylander, 460
U.S. 752, 757 (1983) (defendant in a contempt proceeding cannot raise for
first time a defense that could have been raised during prior enforcement
proceeding); United States v. Bodwell, 66 F.3d 1000, 1001 (9th Cir. 1995)
(per curiam) (whether defendant was properly precluded from raising Fifth
Amendment claim in contempt proceedings turns on whether the claim
could have been properly litigated earlier); S.E.C. v. Oxford Capital
Securities, Inc., 794 F. Supp. 104, 108 (S.D.N.Y 1992) (defendants cannot
raise a Fifth Amendment defense to production of accounting for the first
time in a contempt proceeding).  Evaluating a claim of privilege at the
contempt stage necessarily involves an impermissible retrial of the merits of
the underlying order.  See Maggio v. Zeitz, 333 U.S. 56, 69 (1948) ("[A]
contempt proceeding does not open to reconsideration the legal or factual
basis of the order alleged to have been disobeyed and thus become a retrial
of the original controversy.  The procedure to enforce a court's order
commanding or forbidding an act should not be so inconclusive as to foster
experimentation with disobedience.").  
	[¶17]  Richard also contends that the court abused its discretion by
finding him in contempt of its prior orders mandating an accounting.  His
argument relies entirely on the alleged erroneousness of the court's
underlying factual determination that he had waived his Fifth Amendment
privilege.  See Wells v. State, 474 A.2d 846, 851 (Me. 1984) (inherent in
definition of civil contempt is an ability to comply with the court's order as
well as a contumacious refusal to do so).  Because the record supports the
court's finding that waiver had occurred, as well as its finding that Richard's
refusals to comply with the court's orders were contumacious in other
respects, the court properly exercised its discretion by finding him in
contempt.  See Weiss, 1997 ME 57, ¶ 7, 691 A.2d 1208 (when the record
discloses no clear error in the underlying factual findings, we review
judgment of contempt for an abuse of discretion).      
	The entry is:
   					Judgment affirmed.
Attorneys for plaintiff: Andrew Ketterer, Attorney General Peter J. Brann, Asst. Atty. Gen. (orally) Linda J. Conti, Asst. Atty. Gen. 6 State House Station Augusta, ME 04333-0006 Attorney for defendant: Leonard I. Sharon, Esq. (orally) Sharon, Leary & DeTroy P O Box 3130 Auburn, ME 04212-3130
FOOTNOTES******************************** {1} HER, Inc., joined the notice of appeal filed by Richard, but did not file briefs to challenge the court's order. {2} The statutory scheme states in pertinent part: Offers, sales and purchases In connection with the offer, sale or purchase of any security, a person shall not, directly or indirectly: 1. Fraud. Employ any device, scheme or artifice to defraud; 2. Untrue statements, material omissions. Make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or 3. Deceptive practices. Engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person. 32 M.R.S.A. § 10201. Registration requirement A person may not offer or sell any security in this State unless the security is registered under this Act or the security or transaction is exempt under this Act. 32 M.R.S.A. § 10401. 3. Liability of control persons. In a civil action brought by the Attorney General for a violation of any provision of this Act . . . every person who directly or indirectly controls another person liable for the violation, every partner, officer or director of that other person, . . . is liable to the same extent as that other person, unless the person otherwise secondarily liable under this Act proves that the person did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. Any of the remedies authorized by section 10603, subsections 1 and 2 may be granted with respect to a person secondarily liable under this subsection. . . . 32 M.R.S.A. § 10602. Criminal penalties 1. Knowing violation. Notwithstanding Title 17-A, a person may be fined not more than $5,000 or imprisoned for not more than 5 years, or both, upon conviction, if that person knowingly violates: A. Any provision of this Act except section 10204; . . . 32 M.R.S.A. § 10604. {3} The well-known exception for suspects questioned in police custody-whose waiver must be knowing, intelligent, and voluntary pursuant to a Miranda warning-is premised on the understanding that "custodial interrogation [is] ordinarily conducted by officers who are acutely aware of the potentially incriminatory nature of the disclosures sought, [and that] the custodial setting [contains] inherently compelling pressures which work to undermine the individual's will to resist and to compel him to speak where he would not otherwise do so freely." Minnesota v. Murphy, 465 U.S. 420, 429-30 (1984) (quotations omitted). We have recognized one other exception. See State v. Castonguay, 240 A.2d 747, 751-53 (Me. 1968) (compelled disclosure made by defendant to federal judge in sentencing on previous federal guilty plea for robbery cannot be used against defendant in subsequent state prosecution for same robbery). {4} The second occasion would have involved the August 1996 order, which was predicated on Richard's agreement at the hearing to provide an accounting within ten days. The court, however, does not specify whether waiver occurred in that circumstance by virtue of Richard's agreement at the hearing to supply an accounting (and therefore his failure to refuse then on Fifth Amendment grounds) or due to his submission of a purported accounting in September 1996. Moreover, and despite its reference in the March 1997 order to Richard's having "previously waived the privilege on multiple occasions" (emphasis added), the court does not specify the other instances in which Richard may have waived his Fifth Amendment rights. {5} Moreover, at the March 1997 hearing Richard's counsel conceded that even as early as the "allegations made here in the complaint-[the State is] right. . . . Mr. Richard could have been criminally liable for selling a document that was a security that was unregistered. That's true. So then maybe he should have known that any questions involving the sale of securities-documents that were securities but unregistered left him open to criminal liability. That's what the pleadings say. "