Can a jury instruction presume that promissory notes are securities? State v. Kelson Explained

In State v. Kelson, the Utah Court of Appeals addressed whether a jury instruction creating a mandatory rebuttable presumption about securities violated due process rights, providing important guidance on burden-shifting instructions in criminal cases.

Background and Facts

Grace Kelson sought to raise approximately $125,000 to purchase a letter of credit for development projects. She issued promissory notes to three individuals promising extraordinary returns—up to 600% over one month. The notes were never paid, and Kelson was charged with securities fraud, sale of unregistered securities, sale by an unlicensed broker-dealer, and pattern of unlawful activity. At trial, the parties stipulated to Jury Instruction 25, which stated that notes are “presumed to be a security” but outlined exceptions under a four-factor test.

Key Legal Issues

The court examined two primary issues: (1) whether Jury Instruction 25 created an unconstitutional mandatory presumption that shifted the burden of proof to the defendant, and (2) whether acts occurring over a few days could constitute a “pattern of unlawful activity” under Utah law. Kelson raised the first issue as ineffective assistance of counsel for stipulating to the instruction.

Court’s Analysis and Holding

The court found that Instruction 25 violated due process by creating a mandatory rebuttable presumption. Following Francis v. Franklin, the court determined that the instruction’s command language (“notes are presumed to be securities”) created a mandatory presumption that likely shifted the burden of persuasion to Kelson. The instruction failed to clarify that the State retained the burden of proving the notes were securities beyond a reasonable doubt. The court found counsel’s stipulation to this instruction constituted deficient performance that prejudiced Kelson, as the evidence on whether the notes qualified as securities under the four-factor test was not overwhelming.

On the pattern of unlawful activity charge, the court applied Hill v. Estate of Allred and concluded that predicate acts occurring over “only a few days” could not satisfy the requirement of “a substantial period of time” necessary to establish continuity under the Utah Pattern of Unlawful Activity Act.

Practice Implications

This decision highlights the critical importance of scrutinizing jury instructions for constitutional defects, even when they appear favorable. Defense counsel must be particularly cautious about presumptions that may shift burdens of proof. The ruling also clarifies that Utah’s pattern of unlawful activity statute requires predicate acts to extend over a substantial period—not merely days or weeks—to establish the necessary continuity element.