Mens Rea Applies to Every Element of Colorado Securities Fraud: Advice-of-Counsel Evidence Is Admissible to Negate Willfulness

Introduction

In People v. Schnorenberg, 2025 CO 43, 570 P.3d 1036 (Colo. 2025), the Colorado Supreme Court clarified a foundational point of criminal securities law under the Colorado Securities Act (CSA): when “willfully” (synonymous with “knowingly” under Colorado law) is the prescribed culpable mental state for a securities fraud offense under section 11-51-501(1)(b) or (c), that mental state applies to every element of the crime. This includes not only the conduct (e.g., making a statement or engaging in a course of business) but also the core qualifying elements—materiality under subsection (1)(b) and fraud/deceit under subsection (1)(c).

This ruling resolved whether a defendant can present evidence of good faith reliance on the advice of counsel to negate the requisite mens rea. The Court held such evidence is relevant and generally admissible (subject to typical evidentiary controls), reversed the trial court’s exclusion of the defendant’s advice-of-counsel testimony, and affirmed the court of appeals’ order remanding for a new trial. The opinion also offers guidance on jury instructions relating to advice-of-counsel in this context.

Parties: The People of the State of Colorado (Petitioner) v. Kelly James Schnorenberg (Respondent). Opinion by Justice Gabriel, with all Justices joining. Decision date: June 23, 2025. Citation: 2025 CO 43; 570 P.3d 1036.

Summary of the Opinion

Mens rea scope: Under section 11-51-501(1)(b) and (c), where “willfully” is the prescribed mental state (see section 11-51-603(1)), that mental state applies to every element of the offense unless a contrary legislative intent appears. The Court found no such intent and relied on section 18-1-503(4).
Knowledge of materiality and fraud: For subsection (1)(b), the People must prove the defendant (1) knowingly made an untrue statement of material fact or omitted a material fact, and (2) knew the fact was material. For subsection (1)(c), the People must prove the defendant (1) knowingly engaged in the act/practice/course of business, and (2) knew it would operate as a fraud or deceit on another person.
Advice-of-counsel relevance: Good faith reliance on counsel’s advice is not an affirmative or absolute defense, but it is relevant evidence that can negate the required mens rea for criminal securities fraud under subsections (1)(b) and (c). The trial court erred in excluding the defendant’s testimony about what his securities lawyer advised him.
Hearsay and CRE 403: The People conceded the hearsay ruling was wrong because the advice was offered for its effect on the listener, not for its truth. The Court also rejected post hoc reliance on CRE 403, concluding that the probative value was high, and potential prejudice could be mitigated with limiting instructions and cross-examination. Testifying to advice waives privilege, avoiding “sword and shield” concerns.
Harmless error: Even applying the nonconstitutional harmless error standard, there was a reasonable probability the exclusion contributed to the convictions. New trial required.
Jury instructions: The elemental instructions given correctly tracked the statute and, when the mens rea term is offset, it modifies all succeeding conduct elements. A separate advice-of-counsel instruction is neither required nor prohibited; whether to give it is within the trial court’s discretion, but any such instruction cannot frame good faith as either an absolute defense or as no defense at all.

Background

Kelly James Schnorenberg formed KJS Marketing, Inc. in 2008 and, between 2009 and 2015, solicited over $15 million from approximately 250 investors, offering 12% interest notes. The State charged him with 25 counts of securities fraud under section 11-51-501—24 counts under subsection (1)(b) (material misstatements/omissions) and one under subsection (1)(c) (fraudulent course of business).

At trial, Schnorenberg planned a good faith advice-of-counsel defense based on advice from his securities lawyer, Hank Schlueter. The court denied his motions to continue when Schlueter was unavailable. The court then barred Schnorenberg from testifying to the content of Schlueter’s advice, sustaining a hearsay objection and later refusing a limiting instruction. He could only testify generally that he consulted counsel. The court also refused a defense-tendered instruction informing the jury it could consider good faith reliance on counsel in assessing willfulness. He was convicted on all tried counts.

A division of the court of appeals vacated seven time-barred convictions, reversed the rest, and remanded. The State sought certiorari on whether the division misconstrued the law in finding reversible error in limiting advice-of-counsel evidence and in refusing the defense instruction, which hinged on whether “willfully” applies to each element of securities fraud.

Detailed Analysis

1) Precedents and Authorities the Court Relied On

Statutory presumption of mental state applying to every element: Section 18-1-503(4) directs that when an offense prescribes a culpable mental state, it applies to each element unless the statute limits it—no such limitation exists in section 11-51-501(1)(b) or (c).
Definition of “willfully”/“knowingly”: Section 18-1-501(6) equates “willfully” with “knowingly.” People v. Riley, 708 P.2d 1359, 1365 (Colo. 1985), confirms the equivalence in Colorado’s criminal code.
Colorado securities fraud framework and mens rea: Section 11-51-603(1) prescribes “willfully” for criminal violations of section 11-51-501.
Materiality: Goss v. Clutch Exchange, Inc., 701 P.2d 33, 36 (Colo. 1985) adopts the “reasonable investor” standard—material if a reasonable investor would consider the fact important in investment decisions.
Advice-of-counsel relevance: People v. Hoover, 165 P.3d 784, 792 (Colo. App. 2006) and People v. Terranova, 563 P.2d 363, 366 (Colo. App. 1976) recognize advice-of-counsel as relevant to mens rea in Colorado securities cases. Federal analogues (e.g., United States v. Peterson, 101 F.3d 375, 381–82 (5th Cir. 1996); Howard v. SEC, 376 F.3d 1136, 1147–48 (D.C. Cir. 2004); SEC v. Snyder, 292 F. App’x 391, 406 (5th Cir. 2008); United States v. Bush, 626 F.3d 527, 540 (9th Cir. 2010)) likewise treat such evidence as probative of good faith and lack of fraudulent intent.
Coordination with federal law: Section 11-51-101(3) directs coordination with federal securities laws (e.g., Rule 10b-5, 17 C.F.R. § 240.10b-5) where language parallels. Federal authorities are “highly persuasive.” See Cagle v. Mathers Family Trust, 2013 CO 7, ¶ 19, 295 P.3d 460, 467.
Blair and Riley on “good faith”: People v. Blair, 579 P.2d 1133 (Colo. 1978) rejected “specific intent” framing and an instruction that good faith is an absolute defense. Riley rejected an instruction that good faith is no defense. Together, they foreclose framing good faith as either absolute defense or no defense.
Evidentiary standards: CRE 401 (relevance) and CRE 403 (balancing); People v. Greenlee, 200 P.3d 363, 367 (Colo. 2009) (Rule 403 favors admission). Limiting instructions can cabin nonhearsay use. See Williams v. People, 724 P.2d 1279, 1284 (Colo. 1986); People v. Smalley, 2015 COA 140, ¶ 30, 369 P.3d 737, 744.
Privilege waiver: By testifying to advice, a defendant waives privilege as to that subject matter. People v. Trujillo, 144 P.3d 539, 543 (Colo. 2006).
Offset mens rea in jury instructions: When “willfully” is offset from other elements, it modifies all succeeding conduct elements. People v. Rodriguez, 914 P.2d 230, 272 (Colo. 1996).
Harmless error standards: People v. Monroe, 2020 CO 67, ¶ 17, 468 P.3d 1273, 1276 (nonconstitutional: reversal if reasonable probability the error contributed to the conviction); Hagos v. People, 2012 CO 63, ¶ 11, 288 P.3d 116, 119; Chapman v. California, 386 U.S. 18, 24 (1967).

2) The Court’s Legal Reasoning

The Court’s analysis proceeded in three linked steps: statutory mens rea, evidentiary relevance/admissibility, and prejudice.

a) Mens rea “willfully” applies to every element of subsections (1)(b) and (c)

Section 18-1-503(4) creates a default rule: when an offense specifies a mental state, that mental state applies to each element unless the legislature clearly limits it. No such limitation appears in section 11-51-501(1)(b) or (c). Because section 11-51-603(1) prescribes “willfully” (meaning “knowingly,” § 18-1-501(6)), the People must prove knowledge not just of the conduct, but also of the element that transforms the conduct into the offense:

Subsection (1)(b): The defendant must (i) knowingly make an untrue statement of material fact or omit a material fact necessary to make statements not misleading and (ii) know the fact is material.
Subsection (1)(c): The defendant must (i) knowingly engage in the act/practice/course of business and (ii) know it operates or would operate as a fraud or deceit upon any person.

This clarification is significant. It moves beyond proving that a statement was false or an omission occurred; the State must also prove awareness that the misstated or omitted fact was material, or that the course of conduct would function as fraud or deceit. The Court emphasized this flows from the general mens rea statute and the absence of any contrary legislative instruction in the CSA’s text.

b) Advice-of-counsel evidence is relevant to negate mens rea; it is not hearsay and ordinarily passes Rule 403

With mens rea attached to each element, a defendant’s good faith reliance on counsel becomes probative: it can negate knowledge that an omission or misstatement was material under subsection (1)(b), and negate knowledge that a course of business was fraudulent or deceitful under subsection (1)(c). Consistent with Colorado appellate decisions (Hoover; Terranova) and persuasive federal authority (Howard; Snyder; Peterson; Bush), the Court held such evidence is admissible to show good faith and lack of the required knowledge.

The hearsay objection failed because the statements were offered for their effect on the listener (the defendant’s state of mind), not for their truth. Any Rule 403 concerns were insufficient to exclude the evidence, given:

High probative value: The advice went to the heart of the mens rea dispute.
Mitigation of prejudice: Limiting instructions could confine the jury’s use of the statements to their permissible purpose; cross-examination of the defendant could probe the advice and reliance; the privilege would be waived regarding the advice, enabling probing questions.
Continuance posture: The State opposed and the court denied continuances that might have allowed counsel to appear; the State could not leverage counsel’s unavailability to exclude a core defense.

The Court rejected the argument that recognizing advice-of-counsel as relevant creates an impermissible “mistake of law” defense. The issue is not whether the defendant believed his conduct was legal, but whether he knew a fact was material, or knew the course of conduct would deceive—questions of knowledge about factual and functional elements, not legal conclusions.

c) The error was not harmless

Even under the nonconstitutional harmless error standard, the exclusion was prejudicial. The defendant’s core defense was his good faith reliance on counsel’s advice regarding disclosure and business practices. By preventing him from testifying about the content of that advice, the trial court deprived the jury of evidence central to assessing his knowledge of materiality and fraud/deceit. The Supreme Court concluded there was a reasonable probability the error contributed to the convictions; a new trial is required.

d) Jury instructions on advice-of-counsel

The elemental instructions given properly tracked the statutory text and, by offsetting “willfully,” caused the mens rea to modify all succeeding conduct elements (Rodriguez). As to a separate instruction informing jurors they may consider advice-of-counsel in deciding willfulness, Colorado precedent neither requires nor forbids such an instruction. Blair forbids characterizing good faith as an absolute defense; Riley forbids saying good faith is no defense. Whether to give a tailored instruction clarifying the limited, mens-rea relevance of advice-of-counsel is within the trial court’s discretion.

3) Impact and Practical Implications

a) Prosecution

Elevated proof of mens rea: Prosecutors must prove not merely that a statement was false or that an omission occurred, but that the defendant knew the misstated/omitted fact was material. Likewise, for subsection (1)(c), the State must prove the defendant knew the conduct would operate as fraud or deceit.
Evidence strategy: Expect greater emphasis on circumstantial evidence of knowledge—internal communications, draft disclosures, prior regulatory warnings, contemporaneous notes, investor communications, and any acknowledgments that particular facts matter to investors or that certain practices would mislead.
Responding to advice-of-counsel claims: If the defendant opens the door, prosecutors can explore whether the defendant sought advice in good faith, made full disclosure to counsel, obtained actual advice on the point at issue, and actually relied on that advice. Privilege is waived as to the advice and the communications necessary to place it in context.
Pretrial motions: Anticipate and shape the parameters of advice-of-counsel evidence (scope of waiver, logistics if counsel is unavailable, limiting instructions). Rule 403 objections should be narrowly tailored; generalized prejudice arguments are unlikely to prevail.

b) Defense

Viable mens rea rebuttal: Advice-of-counsel is potent to negate knowledge of materiality/fraud. Assemble a clear record: who advised, what information was disclosed, what the lawyer said, and how the client relied.
Privilege management: Be prepared for waiver as to the subject matter of the advice. Consider selective waiver agreements or protective orders to limit unnecessary spillover, but understand waiver is real and consequential.
Continuances and witness availability: Secure counsel’s presence where feasible. If not possible, preserve the issue through timely motions, proffers, and requests for limiting instructions or alternative forms of proof (e.g., declaration, prior testimony, or remote testimony if permissible).
Jury instruction requests: Tailor any requested instruction to emphasize the limited purpose: advice-of-counsel may be considered in deciding willfulness/knowledge; it is not an affirmative or absolute defense.

c) Trial courts

Admissibility: Treat advice-of-counsel evidence as relevant nonhearsay when offered for effect on the listener. Use limiting instructions to avoid juror misuse for the truth of counsel’s statements.
Balancing under CRE 403: Given high probative value on mens rea, exclusion should be rare. Manage potential prejudice via instructions, cross-examination, and scope-of-waiver rulings.
Scheduling and fairness: Where feasible, accommodate reasonable continuances or alternative testimony methods to avoid undermining a core defense. The Court signaled skepticism of using witness unavailability (especially when precipitated by denied continuances) as a reason to exclude central defense evidence.
Jury instructions: Ensure the elemental instructions reflect that willfulness modifies all elements, including materiality and fraud/deceit. Consider—but are not required to give—an additional instruction that the jury may consider good faith reliance on counsel in assessing willfulness, carefully avoiding the pitfalls identified in Blair and Riley.

d) Doctrinal reach beyond this case

Statutory construction principle reaffirmed: The Court’s reliance on section 18-1-503(4) is not securities-specific. When a Colorado statute defining an offense prescribes a culpable mental state, courts will presume it applies to each element absent clear legislative limitation.
Federal-state coordination: Although Colorado’s criminal mens rea standard here is “willfully/knowingly” and federal cases commonly speak in terms of “scienter,” the Court’s approach is harmonious with federal practice treating advice-of-counsel evidence as relevant to intent/knowledge. This opinion may influence civil and administrative contexts as persuasive authority on the relevance of advice-of-counsel to mental state questions, recognizing differences in burdens and elements.

Complex Concepts Simplified

Willfully/Knowingly: In Colorado, “willfully” and “knowingly” are equivalent for criminal law purposes. A person acts knowingly with respect to conduct or circumstances when aware of the nature of their conduct or that the circumstance exists.
Materiality: A fact is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. The prosecution must prove the defendant knew the fact’s importance to a reasonable investor—not just that the fact was important in the abstract.
Fraud or deceit (subsection (1)(c)): A course of business “which operates or would operate as a fraud or deceit” is one that functions to mislead. The State must prove the defendant knew the practice would so operate, not merely that it did.
Advice-of-counsel: Not an affirmative or absolute defense. It is evidence that the defendant acted in good faith and lacked the required knowledge. Juries may consider it when deciding whether the State proved the requisite mens rea.
Hearsay vs. effect on listener: An out-of-court statement offered to show its impact on the listener’s state of mind (e.g., why the defendant believed he need not disclose something) is not hearsay because it is not offered for the truth of the statement.
CRE 403 balancing: Even relevant evidence can be excluded if its probative value is substantially outweighed by risks like unfair prejudice or confusion. Here, the strong probative value of advice-of-counsel evidence on mens rea typically outweighs such risks, especially with limiting instructions.
Harmless error: If an error likely contributed to the conviction, reversal is required. Because the excluded advice-of-counsel testimony went to the heart of mens rea, its exclusion was not harmless.
Scienter vs. willfulness: Federal cases often use “scienter” to capture intent or knowledge to defraud. Colorado’s criminal standard here is “willfully/knowingly.” The Court’s holding rests on Colorado’s statutory presumption that the prescribed mens rea applies to each element, making the precise federal word choice less important.
Mistake of law: A belief that one’s conduct is lawful generally is not a defense. This case does not create a mistake-of-law defense; it focuses on knowledge of materiality and knowledge that conduct would deceive—fact-laden mental states, not abstract legality.
Privilege waiver: A defendant who testifies about what a lawyer advised generally waives attorney-client privilege as to that advice, allowing cross-examination and rebuttal about the substance and context of the advice.

Conclusion

People v. Schnorenberg materially clarifies Colorado criminal securities law. By holding that “willfully” applies to every element of subsections 11-51-501(1)(b) and (c), the Court requires prosecutors to prove not only that a misstatement or omission occurred or that a practice operated as fraud, but that the defendant knew the fact was material and knew the practice would deceive. This deepens the mens rea requirement and aligns with Colorado’s general rule that a specified mental state applies to each element unless the statute says otherwise.

The Court also confirms that advice-of-counsel evidence—properly cabined to its effect on the defendant’s state of mind—is relevant and generally admissible to negate willfulness/knowledge, and its exclusion here was reversible error. Trial courts should manage, not foreclose, such evidence through limiting instructions, scope-of-waiver rulings, and cross-examination. While elemental instructions must faithfully track the statute such that willfulness modifies all elements, a separate advice-of-counsel instruction is discretionary and must avoid characterizing good faith as either an absolute defense or no defense.

The opinion’s practical effect is significant: it recalibrates proof burdens in criminal securities fraud prosecutions under the CSA, guides trial management of advice-of-counsel evidence, and reinforces a core principle of Colorado criminal law—that a prescribed mens rea permeates every element of an offense absent clear legislative limitation.