## Facts

- Norman Duncan was president of Smart Pak, Inc., a subsidiary of Survival Heat Products, Inc., which produced and marketed a dry granulated charcoal lighter (“Smart Start”) and a combination package of Smart Start and charcoal briquettes (“Smart Pak”).
- Smart Pak planned to use automated packaging machines, but the machines could not properly seal a special “child proof” paper used in the products.
- After that problem arose, Duncan and other Smart Pak employees sold “package sealer agreements” in Gallatin County, Montana.
- Under the agreements, individuals paid between $500 and $5,000 to obtain an exclusive right to seal Smart Pak’s product packages in a designated territory.
- Smart Pak supplied the materials; the “sealers” performed the sealing work and then sold the sealed bags back to Smart Pak.
- State and federal authorities investigated whether the sealer agreements were “investment contracts” that Duncan had sold without registering as securities.
- Smart Pak later ceased operations and went into receivership.
- The State filed a four-count information charging Duncan with: (1) deceptive practices; (2) fraudulent securities practices; (3) failure to register securities; and (4) issuing a bad check.
- The trial court dismissed the bad-check count. Duncan pleaded not guilty to the remaining counts, waived a jury trial, and was tried to the court.
- After the bench trial, the court found Duncan guilty of deceptive practices and failure to register securities, and dismissed the fraudulent-securities count.
- The court sentenced Duncan to five years on the deceptive-practices count and three years on the failure-to-register count, to run concurrently.
- Duncan appealed to the Montana Supreme Court.

## Issues

1. Whether substantial evidence supported Duncan’s conviction for deceptive practices based on the State’s proof that he obtained money through deceptive statements or conduct in selling the sealer agreements.
2. Whether the package sealer agreements were “investment contracts” and therefore “securities” under Montana law, making their sale without registration a criminal offense.

## Decision

- The Montana Supreme Court affirmed the convictions and concurrent sentences.
- The court held that the record supported the trial court’s finding that Duncan’s conduct in selling the sealer agreements amounted to deceptive practices.
- The court held that the sealer agreements were investment contracts (and thus securities) and that Duncan’s failure to register them supported the conviction for failure to register securities.

## Legal Principles

- On review of a criminal conviction, the appellate court asks whether the evidence, viewed in the light most favorable to the State, is sufficient to support the factfinder’s determination of guilt beyond a reasonable doubt.
- A scheme can qualify as deceptive practices when a defendant obtains property through deceptive statements, omissions, or conduct proven at trial to be materially misleading in context.
- An “investment contract” exists when there is (1) an investment of money, (2) in a common venture, (3) with an expectation of profits, (4) to come primarily from the managerial or entrepreneurial efforts of others; courts look to the economic reality of the arrangement rather than the label attached to it.
- When an arrangement is a security under state law, it must be registered (absent a valid exemption); selling it without registration can support criminal liability.

## Conclusion

State v. Duncan affirmed Duncan’s convictions for deceptive practices and for selling unregistered securities because the evidence supported the trial court’s finding that the sealer-agreement sales were deceptive and because, in substance, the sealer agreements were investment contracts requiring registration under Montana securities law.


State v. Duncan, 593 P.2d 1026 (1979)