State of Iowa v. Alan Lee Lucas ( 2015 )

IN THE COURT OF APPEALS OF IOWA
No. 14-0458
Filed July 22, 2015
STATE OF IOWA,
Plaintiff-Appellee,
vs.
ALAN LEE LUCAS,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Nancy A.
Baumgartner, Judge.
A defendant appeals his convictions for ongoing criminal conduct and theft
in the first degree. AFFIRMED.
Mark C. Smith, State Appellate Defender, and Martha J. Lucey, Assistant
Appellate Defender, for appellant.
Thomas J. Miller, Attorney General, Kevin Cmelik, Bridget A. Chambers,
and Robert H. Sand, Assistant Attorneys General, Gerald Alan Vander Sanden,
County Attorney, for appellee.
Considered by Tabor, P.J., McDonald, J., and Sackett, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2015).
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SACKETT, S.J.
Alan Lee Lucas appeals from the judgment entered following his
convictions for ongoing criminal conduct and theft in the first degree. He
contends the evidence is insufficient to support his convictions and his trial
counsel was ineffective in several respects. Lucas also appeals his sentence,
contending the court abused its discretion by improperly considering an unproven
offense. After reviewing the issues raised, we affirm Lucas’s convictions and
sentence, but preserve two claims of ineffective assistance of counsel for a
possible postconviction-relief proceeding.
I. BACKGROUND FACTS AND PROCEEDINGS.
Covenant Investment Fund, L.P. (Covenant) is a hedge fund formed by
Noah Auwles, who acted as the fund’s general partner. It consists of a “family” of
different funds, or what is known as “a fund of a fund.” Some of Covenant’s
investors complained to the Iowa Insurance Commissioner about its poor
performance. Auwles was advised to break up Covenant by liquidating each of
the funds and distributing the money to the fund’s investors. Auwles liquidated
one of Covenant’s funds, UltraSharp, before selling Covenant.
In May 2010, Auwles sold Covenant to Lucas for the purchase price of
one dollar and Lucas’s agreement to assume liability for a $62,540 debt
Covenant owed. Lucas owned a number of shell corporations that were not
profitable when he took control of Covenant. One of those corporations, Phalanx
Technology Holdings, was about to be evicted from its office because it owed
$9000 for rent.
3
When Lucas took control of Covenant, it had $189,000 in the bank from
the UltraSharp liquidation. Although that money was supposed to be distributed
to investors, Lucas had spent between $157,000 and $167,000 of that $189,000
within a year of assuming control of Covenant. Lucas used Covenant funds to
pay the rent for Phalanx Technology Holdings, start-up expenses for a data
center Lucas wanted to build, and the salary of the person hired to raise capital
for the data center. Lucas also used Covenant funds to purchase a BMW for
business and pay a number of personal expenses, including his wife’s credit card
debt and the property taxes on his personal residence.
The State filed a trial information charging Lucas with ongoing criminal
conduct and first-degree theft on June 9, 2011.1 Following a jury trial in October
2013, Lucas was convicted as charged. He was sentenced to a term of not more
than ten years in prison on the first-degree theft conviction and a term not more
than twenty-five years in prison on the ongoing criminal conduct conviction. The
sentences were ordered to be served concurrently.
II. SUFFICIENCY OF THE EVIDENCE.
Lucas first contends there is insufficient evidence to support either of his
convictions. We review sufficiency-of-the-evidence claims for correction of errors
at law. State v. Robinson, 859 N.W.2d 464, 467 (Iowa 2015). We will not disturb
a finding of guilt if it is supported by substantial evidence when reviewing the
record as a whole. Id. We view the evidence in the light most favorable to the
State. Id. In order to be considered substantial, the evidence must be enough to
1
A money laundering charge was later added and then dismissed.
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convict a rational factfinder the defendant is guilty beyond a reasonable doubt.
Id.The jury was instructed that in order to convict Lucas of theft, the State
was required to prove Lucas had possession of money owned by Covenant
investors and intentionally misappropriated the money by disposing of it in a
manner inconsistent with the owners’ rights. The jury was further instructed that
misappropriation occurs when
a person, knowing he had no right or permission to do so, exercises
control over property or aids a third person in exercising control, so
that the benefit or value of the property is lost to the owner.
Misappropriation may also occur when a person knowingly
disposes of property for his own benefit or for the benefit of a third
person.
However, the jury was also instructed on the claim-of-right defense, which states
that “[a] person who disposes of property is not guilty of Theft if he reasonably
believes he has a right, privilege, or permission to do so, or if he does in fact
have such right, privilege or permission.”
To be convicted of ongoing criminal conduct, the jury was instructed the
State had to prove Lucas committed thefts on an ongoing basis for financial gain
and those thefts were punishable as indictable offenses. In other words, the
State was required to prove Lucas committed a number of thefts of property
valued at more than $200 on an ongoing basis.
Lucas challenges both convictions on the basis the State cannot establish
he committed one theft, let alone multiple thefts. He argues he had a right to the
Covenant funds he spent. Specifically, he argues that as Covenant’s general
5
partner, he was entitled to the money in the form of management fees and
reimbursement for expenses.
A. Management Fees.
Covenant investors were provided with a private placement memorandum
(PPM) that outlines Covenant’s general operating procedures. Under Article VI
of the PPM, entitled “Fees and Expenses: Brokerage Practices,” it states that “[i]n
consideration for the provision of certain administrative services, the General
Partner shall receive a management fee . . . equal to 1/4th of 2.00% per Fiscal
Quarter of each Limited Partner’s share of the Partnership’s Net Asset Value.”
The management fee “shall be payable quarterly in advance and calculated as of
the first day of each Fiscal Quarterly [sic].” Lucas claims the State failed to
present any evidence of the partnership net asset value, and therefore, it cannot
disprove he was entitled to spend the money as part of his management fees.
Lucas faults the State for failing to introduce evidence of the fund’s value. 2
Because the State failed to prove its value, he argues it cannot prove he was not
entitled to the money he spent from the fund, claiming they were management
fees. We disagree. The evidence, viewed in the light most favorable to the
State, shows Lucas was not entitled to management fees in the amount disposed
of and did not have a reasonable belief that he was entitled to management fees
in this amount.
2
While Lucas attempts to construe the lack of evidence in the record as the State’s
failure of proof, we note that the PPM states Covenant’s net asset value is to be
determined by valuing all partnership assets and liabilities on the last day of each month.
The PPM tasks the general partner with the duty to keep true and complete records and
books of account, and to prepare financial statements and all instruments to effectuate
the business of the partnership.
6
The evidence shows Covenant’s net asset value was unclear during the
period Lucas was in control of it. Covenant’s records were poorly kept before
Lucas took control. Robyn Palmer testified that when Lucas first received the
Covenant documents, “[i]t was a mess. Like I said, there were records scattered
everywhere. Trying to figure out the flow of money, where it was coming, where
it was going, who had invested, what their current balances were. There was
very incomplete information.” Lucas hired Palmer “to piece together exactly what
it was we had” in the fund. She worked for Lucas for approximately four months
before quitting over concerns about how he was handling the money. When
Palmer quit on September 10, 2010, the results of her investigation into where
the money had gone and how much money was within the various funds
remained “inconclusive.”
Lucas was not entitled to the money he spent as management fees.
Lucas was unaware of the Covenant’s net asset value from May 2010 until at
least September 10, 2010. While he had no basis upon which to calculate his
management fees paid during this period, he spent over $35,000 in Covenant
funds during the same period, making twenty-five withdrawals of more than $200
from Covenant’s bank account. These withdrawals include the initial $9000
payment for the rent Phalanx Technology Holdings owed for office space, plus
two additional payments of $3300 to the same lessor. Lucas also paid over
$2000 in personal property taxes from the account during this period and made a
$4881.80 payment on his wife’s Discover card.
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The evidence of Lucas’s behavior shows Lucas also lacked a good-faith
belief he was entitled to the money. Lucas moved money between eleven bank
accounts and gave false or misleading testimony at an administrative hearing
with regard to how the funds were used. One of the fund’s investors testified
Lucas had falsely informed him the State had taken control of Covenant’s funds
and was working to distribute them during a period when Lucas was still in
control of the funds. These actions indicate Lucas knew he had no right or
permission to the use the funds.
B. Reimbursement for Expenses.
Lucas also contends the State cannot prove he misappropriated any
partnership money he was legally entitled to as reimbursement of operating
expense and liquidation expenses. Under section 6.02(b), entitled “Operating
Expenses,” the PPM states:
The Partnership shall pay or reimburse the General Partner, the
Investment Manager and/or their affiliates for (A) all expenses
incurred in connection with the ongoing offer and sale of Interests,
including but not limited to, marketing expenses, documentation of
performance and the admission of Limited Partners, (B) all
operating expenses of the Partnership such as tax preparation
fees, governmental fees and taxes, administrator fees,
communications with Limited Partners and ongoing legal,
accounting, auditing, bookkeeping, insurance, consulting and other
professional fees and expenses, (C) all Partnership trading costs
and expenses (e.g., brokerage commissions, margin interest,
expenses related to short sales, custodial fees and clear and
settlement charges), (D) professional and other advisory and
consulting expenses and travel expenses incurred in connection
with investment due diligence, monitoring or the assertion of rights
or pursuit of remedies (including without limitation, pursuant to
bankruptcy or other legal proceedings, or participation in informal
committees or creditors or other security holders of an issuer), (E)
external data services (including, but not limited to, bond pricing
and rating data feed) and software expenses including in identifying
8
and monitoring investment opportunities, and (F) all fees and other
expenses incurred in connection with the investigation, prosecution
or defense of any claims by or against the Partnership.
However, the PPM also provides that the General Partner pay the “general
operating and overhead type expenses associated with providing the
administrative and investment management services required under the
Partnership Agreement,” including “all expenses incurred by the General Partner
in providing for its normal operating overhead, including, but not limited to, the
cost of providing relevant support and administrative services (e.g., employee
compensation and benefits, rent, office equipment, insurance, utilities, telephone,
secretarial and bookkeeping services, etc.).”
Payments for personal property taxes and personal credit card accounts
cannot be reimbursed under the PPM. The PPM also explicitly states rent and
other overhead costs are to be incurred by the general partner and are not
reimbursable. Therefore, the specific expenditures discussed in subsection A
were not reimbursable. Furthermore, as discussed in subsection A, Lucas’s
actions following his use of the funds indicate he knew he had no right to
reimbursement from the fund for the purchases he made.
C. Conclusion.
Substantial evidence shows Lucas intentionally misappropriated more
than $10,000 of property to which he had no legal right. Substantial evidence
also shows Lucas committed thefts of property valued more than $200 on an
ongoing basis. Accordingly, we affirm his convictions of first-degree theft and
ongoing criminal conduct.
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III. INEFFECTIVE ASSISTANCE OF COUNSEL.
Lucas next contends he received ineffective assistance from his trial
counsel. He advances three ineffective-assistance claims on appeal: (1) trial
counsel failed to object to questions regarding Lucas’s credibility, (2) trial counsel
failed to object when the prosecutor made improper argument in closing
argument, and (3) trial counsel failed to object or to move to redact allegations of
prior bad acts from his prior sworn testimony.
We review ineffective-assistance-of-counsel claims de novo. State v.
Ross, 845 N.W.2d 692, 697 (Iowa 2014). A defendant wishing to succeed on
such a claim must show counsel’s performance was deficient and there is a
reasonable probability that the outcome of the proceeding would have differed
but for counsel’s errors. Id. at 697-98. Typically, we preserve ineffective-
assistance claims for postconviction relief proceedings, but we will address them
on direct appeal where the record is adequate. State v. Bearse, 748 N.W.2d
211, 214 (Iowa 2008).
A. Testimony Regarding the Defendant’s Credibility.
Lucas first contends his trial counsel was ineffective in failing to object to
incidents of alleged prosecutorial misconduct while examining witnesses.
Specifically, Lucas claims the prosecutor improperly asked witnesses to
comment on his veracity or asked him to comment on another witness’s
testimony, as follows:
 In response to a line of questioning during cross-examination, the
prosecutor asked Michael Ferjak, an investigator at the Iowa Attorney
General’s Office, if he believed Lucas’s claim he had tried to recover
assets for the fund’s investors. Ferjak replied, “I did not.”
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 One of the fund’s investors, Alan Hanson, testified Lucas agreed the
fund’s money should be distributed to investors proportionately to their
investment amounts. The prosecutor then asked, “But there was a but
there?” and Hanson answered, “Yeah. I didn’t believe him.”
 Lucas’s sworn testimony from an administrative hearing was admitted at
trial. In it, Lucas was asked if another witness misspoke when describing
who drafted a letter. Lucas’s counsel objected, and Lucas did not answer
the question. The transcript of the sworn testimony was admitted at trial,
and Lucas’s trial counsel failed to object or move for redaction of that
portion of his statements.
 Kerry Bolt testified regarding the Covenant funds Luas spent and how they
were used. When asked if Lucas’s statement that on December 20, 2011,
all of the money was still available was true, Bolt answered, “No, that was
a false statement.”
In State v. Graves, 668 N.W.2d 860, 873 (Iowa 2003), our supreme court
held it is improper for a prosecutor to ask a defendant if another witness has lied.
In reaching this conclusion, the court considered what purpose is served in
asking a defendant whether another witness is lying:
We think the predominate, if not sole, purpose of such questioning
is simply to make the defendant look bad . . . . The accused’s
answer is unimportant because the accused is in a no-win situation.
If the defendant says the other witness is lying, then the defendant
is put in the position of calling someone a liar, a particularly
unenviable state when the other witness is a law enforcement
officer. If the defendant says a contradictory witness is not lying,
then a fair inference is that the defendant is lying.
Graves, 668 N.W.2d at 872.
None of the instances of alleged prosecutorial misconduct noted above
implicate the concerns noted by the Graves court. Lucas did not testify in his
own defense, and therefore was never placed in the position of being asked if
another witness was lying. In three of the four incidents, a witness testified
regarding the truth or believability of an out-of-court statement made by Lucas,
11
which was relevant to the determination of whether Lucas knew he was using
Covenant funds without the right to do so.
In the remaining incident, Lucas was questioned about a discrepancy
between his statement and another witness’s testimony. Specifically, he was
asked if the other witness “misspoke.” Although an objection to the question was
sustained, Lucas argues the failure to redact the question poses the same
concerns the court stated in Graves. We disagree. Asking a defendant if a
witness who gives a contrary account is lying implies something different than
asking if another witness misspoke. To lie is “to make an untrue statement with
intent to deceive.” Lie, Merriam-Webster, http://www.merriam-
webster.com/dictionary/lie (last visited Jun. 10, 2015) (emphasis added). In
contrast, to misspeak is “to express (oneself) imperfectly or incorrectly.”
Misspeak, Merriam-Webster, http://www.merriam-webster.com/dictionary/
misspeak (last visited Jun. 10, 2015). While a lie is an intentional act,
misspeaking is a product of inability or mistake. As the Graves court noted,
[A]s any trial lawyer knows, there may be many explanations for
differing descriptions of the same event. People have different
perceptions of the same conversation that affect how and what they
remember. Perhaps there was a misunderstanding of what was
said; perhaps one person was distracted and did not fully or
correctly hear the words uttered by the other person. People
sometimes hear what they want to hear. It is unjust to make the
defendant give an opinion as to who is lying when, in fact, it is
possible that neither witness has deliberately misrepresented the
truth.
668 N.W.2d at 872. The question posed to Lucas presented a possibility of
something other than a deliberate misrepresentation of the truth in the differing
answers given by another witness and himself. Accordingly, counsel had no duty
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to request redaction or object to the admission of his testimony in an
administrative hearing.
B. Prior Bad Acts Testimony.
Lucas next contends his trial counsel was ineffective in failing to object to
and move to redact allegations of prior bad acts from his prior sworn testimony.
Although such evidence may be admitted for other purposes, it cannot be
admitted to prove a person’s character and show the person acted in conformity
therewith. Iowa R. Evid. 5.404(b). Even where prior-bad-acts evidence is both
relevant and material to a legitimate issue in the case other than a general
propensity to commit wrongful acts, the use of such evidence for impermissible
purposes may result in reversible error. See State v. Reynolds, 765 N.W.2d 283,
293 (Iowa 2009).
Lucas alleges questions regarding his advising of investors, holding
himself out as an investment advisor, and establishing an investment advisory
firm are all prior bad acts that are unrelated to the criminal charges he was facing
and were therefore inadmissible. The prosecutor referenced this testimony in
closing argument as part of an “ocean of deception” Lucas engaged in. We
preserve this matter for a possible postconviction-relief proceeding to allow the
record to be further developed.
C. Improper Argument in Closing Argument.
In his final claim of ineffective-assistance-of-counsel, Lucas contends his
trial counsel was ineffective in failing to object to what he characterizes as
improper argument by the prosecutor during closing argument. Specifically, he
13
objects to an argument the prosecutor made regarding why Lucas may have told
Hanson the State had taken control of the Covenant funds when it had not.
When presenting the jury with possible reasons, the prosecutor stated it might be
“because the State does that sort of thing for free. When the State recovers
individual’s items that have been—or individual’s property in this sort of a
situation, they're not charging a percentage.” Lucas argues the prosecutor
engaged in misconduct by referring to the State’s process of distributing
investment fund money or the cost to investors of the State doing so, which are
facts outside of the record.
The purpose of closing argument is to assist the jury in analyzing,
evaluating, and applying the evidence. State v. Melk, 543 N.W.2d 297, 301
(Iowa 1995). An attorney can only argue a theory of the case from the evidence
admitted at trial. State v. Elliott, 806 N.W.2d 660, 674 (Iowa 2011). While a
prosecutor is afforded the latitude to draw conclusions and argue permissible
inferences derived from the evidence in closing arguments, a prosecutor cannot
create evidence. State v. Shanahan, 712 N.W.2d 121, 139 (Iowa 2006). The
test is whether the comments are founded upon relevant evidence or a legitimate
inference from the evidence. State v. Martens, 521 N.W.2d 768, 773 (Iowa
1994). Because the prosecutor’s statement regarding the State’s procedure for
recovering money was not founded upon relevant evidence or a legitimate
inference from the evidence, it was objectionable.
We have preserved Lucas’s claim counsel was ineffective in failing to
object to the prosecutor’s closing argument for possible postconviction-relief
14
proceeding. Where more than one claim of ineffective assistance is raised on
direct appeal, we can only dismiss the claim if the errors alleged do not
cumulatively prejudice the defendant. State v. Clay, 824 N.W.2d 488, 501–02
(Iowa 2012). Accordingly, we also preserve this claim of ineffective assistance of
counsel for a possible postconviction-relief proceeding.
IV. SENTENCING.
In his final assignment of error, Lucas contends the district court
considered improper evidence in sentencing him. We review sentencing
decisions for the correction of errors at law. State v. Formaro, 638 N.W.2d 720,
724 (Iowa 2002). However, where the sentence imposed is within the statutory
limits, we will only overturn it for an abuse of discretion or a defect in the
sentencing procedure, such as the consideration of an impermissible sentencing
factor. Id.Lucas was absent from the second day of trial, and a record of his
absence was made outside the jury’s presence. Lucas’s trial counsel informed
the court that although Lucas claimed his son had been in a car accident that
morning, Lucas’s mother had informed him Lucas planned to leave the country
with his son.
At sentencing, Lucas denied that he tried to flee. The court stated, “You
say that you didn’t flee during the trial, which is directly contradicted by your own
mother, who came to court to inform us that she watched you purchase a plane
ticket from Chicago with the ultimate destination, I believe, [of] India. . . . And
she sobbed in open court.” Lucas’s counsel then objected to the presentence
15
investigation report, which indicated Lucas was trying to flee the country, arguing
there was no real evidence of that. The sentencing court responded, “[O]ther
than that given by his mother in open court.”
In sentencing Lucas, the court noted his crime did not involve violence,
and therefore, consecutive sentences were not warranted. The court concluded
a prison sentence was appropriate, however, finding Lucas had failed to take
responsibility for his actions or show remorse. The court also noted Lucas
demonstrated by his actions his intent to cause delay “at every point in the trial”
before concluding, “You feel no remorse to these people whose money you used
for yourself and for your wife at the time.” The court then referenced Lucas’s
attempt to flee, stating:
And then during the trial, you fled the jurisdiction and it was
your mother who came into court to tell us what your plans were
and that she watched you purchase a plane ticket out of the country
and that she was worried about you and your son and said that you
had not been raised that way.
But your actions in absenting yourself from the trial, making
plans to leave the country, and believing as I—you firmly believe
that you could do whatever you wanted with that corporate money.
To the detriment of that corporation, the money went to you. It did
not go to the company or shareholders.
And for that reason, I believe a prison sentence is warranted.
Lucas contends that although he failed to appear for the second day of
trial, the record does not shows he committed the criminal offense of failure to
appear. Therefore, he argues, it was improper for the court to consider it as a
factor in sentencing.
When a defendant alleges the sentencing court improperly considered
unproven crimes, the question is whether the record sufficiently establishes the
16
matters relied on. State v. Longo, 608 N.W.2d 471, 475 (Iowa 2000). An
unproven or unprosecuted offense may only be considered if the facts before the
court show the accused committed the offense or the defendant admits it. State
v. Gonzalez, 582 N.W.2d 515, 516 (Iowa 1998).
While Lucas denies he committed the offense of failure to appear, there is
ample credible evidence in the record to show he attempted to flee the
jurisdiction to avoid responsibility for the offenses for which he was being tried.
The court considered Lucas’s attempt to flee the jurisdiction as one of several
factors showing his failure to accept responsibility for his wrongdoing and show
remorse, which our supreme court has held “is highly pertinent to evaluating his
need for rehabilitation and his likelihood of reoffending.” See State v. Knight, 701
N.W.2d 83, 88 (Iowa 2005); see also United States v. French, 719 F.3d 1002,
1009 (8th Cir. 2013) (affirming a sentence where the lower court considered the
defendant’s attempt to evade capture for two-and-one-half years, which
demonstrated “a lack of remorse and an unwillingness to take responsibility for
his actions”).
Because the district court did not abuse its discretion in sentencing Lucas,
we affirm.
AFFIRMED.