Alabama Man Pleads Guilty To Selling Cars He Didn’t Own: Where’s the crime?

According to the United States Attorney’s Office for the Middle District of Alabama, and various related published stories, 35-year-old Robert Brandon Malone of Prattville, AL plead guilty Tuesday, February 18, 2020 in Federal court to three counts of wire fraud, and one count of transporting a stolen vehicle in a scheme in which he sold cars he did not own.

United States Attorney Louis V. Franklin, Sr., FBI Special Agent in Charge James Jewell, and Prattville Police Chief Mark Thompson made the announcement.

The United States Attorney’s Office issued a news release 20 February which outlined the facts of the case, as follows:

“According to court records, in April of 2017, Malone posted a Dodge Ram 1500 pickup truck for sale on the advertising website craigslist. However, the truck was actually a trade-in vehicle to the dealership for which he worked at the time. After the post, he was contacted by a potential buyer and represented to him that he was the actual owner. The buyer made the purchase, but returned the vehicle after learning that Malone did not own the truck. Malone did not refund his money.

“Later, in January of 2018, Malone was working on a Chevrolet C-10 pickup truck for someone and was storing it at his shop. Once again, he created a craigslist post listing it for sale although the owner had not given him the authority to do so. A potential buyer contacted Malone and arranged a trade for another vehicle. Once he learned that Malone did not own the truck, it was returned to the rightful owner. However, the vehicle that was traded was not returned.

“Finally, in November of 2018, Malone went to a car dealership in Georgia and was in the process of completing the paperwork to purchase an Audi R8. However, before the purchase was complete, he drove the vehicle off the lot and back to Prattville. He contacted someone that he knew was in the market for an Audi and they drove to Prattville to look at the vehicle. The purchaser gave him a down payment for the car and left his F-150 with Malone to hold temporarily until he could return to pick it up. Malone did not wait for the owner to return, instead, he listed the truck on Instagram and sold it to another individual. Ultimately, the Audi was returned to the dealership and the truck to the Audi purchaser. However, neither victim recovered their losses.”

Now, this is where things get interesting.

Just in the case you’re not aware of it (and I wouldn’t expect 95-98% of readers to be, though I could be surprised), such an activity isn’t illegal on the stock market… per se.

First, let’s review the core facts of the above-mentioned case.

1.) In the first instance, by virtue of his employment, he (Malone) was in possession of a vehicle, which he sold to a willing party. The willing party returned the truck when he discovered that Malone didn’t have title to it, and Malone didn’t refund his money. A case for theft could possibly have been made, but was not, because under Federal law, sellers have no responsibility to refund items purchased when the willing purchaser experiences “buyer’s remorse.”

2.) Malone was again in possession of a vehicle which he was in the process of repairing, or had repaired, which was stored on his property, and traded it to another willing party for another vehicle. When the willing party discovered that the vehicle for which he traded was not titled to Malone, the willing party relinquished the vehicle to the owner of record, and (apparently) requested return of the vehicle which he traded, which Malone kept. Malone could have charged storage fees for both vehicles, and could have claimed, or placed a mechanic’s lien upon the first, and or second vehicle.

3.) Malone crossed state lines to purchase a high-dollar vehicle from a dealership, and in the process of finalizing sales documents, absconded with the vehicle and returned to his residence, whereupon he proceeded to sell the vehicle to a willing buyer, who made a deposit upon the same, and left his original vehicle with Malone, which Malone then sold. Malone could have charged storage fees for the original vehicle.

Let’s examine some common and legal practices which occur daily in financial markets.

In financial parlance, “shorting” is a practice in which material goods (such as stocks, bonds, or other financial vehicles, including commodities) are borrowed from the owner, and then sold. That’s the long-and-short of it.

The financial education website Motley Fool states this about short-selling:

“Shorting a stock involves borrowing shares from someone who owns the stock you want to sell short. Once you borrow the shares, you then sell them on the open market, getting cash from whoever buys the shares from you. At some point in the future, you’ll buy back the stock and then return the shares to the investor from whom you borrowed them.

“Typically, the reason for shorting a stock is that you hope that by the time you buy back the shares that you’ve sold, the price of the stock will have dropped. That’ll let you buy back the shares with less money than you originally received when you sold them. After you return the bought-back shares to the investor who lent them to you, you’ll still have some cash left over. That leftover cash is your profit from the short sale — assuming that the price fell in the interim, as you expected.”

Reiterating, “you are effectively borrowing shares of the stock from your broker and selling them on the open market. The idea is that if the stock’s price drops, you can then buy it back for less than you owe the broker and pocket the difference.”

The website Investopedia states this about short selling, which is commonly called “shorting”:

“Short selling is an investment or trading strategy that speculates on the decline in a stock or other securities price. In short selling, a position is opened by borrowing shares of a stock or other asset that the investor believes will decrease in value by a set future date—the expiration date. The investor then sells these borrowed shares to buyers willing to pay the market price. Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost. The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity.”

Reiterating short selling, you borrow a thing from someone, and then sell it.

Now, insofar as Malone did not return, nor make any attempt to return the vehicles which flowed through his hands, he could possibly have been charged with theft. Yet he wasn’t. Because he had possession of those vehicles in every case… well, possession, as they say, is 9/10ths of the law. And in every transaction, there was a willing purchaser and a willing buyer. “Buyer’s remorse” doesn’t count for anything, and has no legal precedent, per se, and once it’s sold, it’s sold.

The Federal Trade Commission does have a “Cooling-Off Rule,” is a consumer protection law which protects individuals who do NOT purchase something at a primary, or permanent place of business – in other words, in their home. In fact, the law was originally written to cover purchases made through door-to-door sales. And the law specifically excludes “automobiles, vans, trucks, or other motor vehicles sold at temporary locations if the seller has at least one permanent place of business.” It also does NOT cover transactions “made entirely online, or by mail or telephone,” or which are “the result of prior negotiations at the seller’s permanent place of business where the goods are sold regularly,” or are “made as part of your request for the seller to do repairs or maintenance on your personal property (purchases made beyond the maintenance or repair request are covered).” While there were some changes to the rule in 2015, it only changed the dollar amount, and none of the exceptions.

When Malone crossed state lines, he unknowingly stepped into the FBI’s jurisdiction which investigates crimes which occur in more than one state, i.e., a state line must be crossed, and that includes telecommunications – hence the wire fraud charge, because he used a website.

Malone acted as a a broker, which is defined by Investopedia as “an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. A broker also refers to the role of a firm when it acts as an agent for a customer and charges the customer a commission for its services. This whole process was revolutionized by the paradigm shift caused by the internet.” Commonly, a broker is an independent party who acts as an intermediary, or conduit by and through which negotiations for contracts of purchase and sale – such as real estate, commodities, or securities – and may act as either buyer, or seller. Typically, brokers receive a commission as a percentage of the sale, or sometimes, a flat fee, for their work.

It’s also more than likely that Malone practiced “arbitrage,” which is another financial technique in which a good, or commodity, is purchased at one price, and sold at another in a different market – simply put as “buy low here, sell high there” – which is an extremely common technique in every market, bar none. When you buy butter beans, milk, meat, bread, or clothing, real estate, or practically every item, someone (the seller) is acting in a role as an arbitrageur – someone who engages in arbitrage. Almost every retailer, big-box, or not, engages in arbitrage. The Economist website defines arbitrage as “buying an asset in one market and simultaneously selling an identical asset in another market at a higher price. Sometimes these will be identical assets in different markets.”

So Malone was buying and selling vehicles, albeit different types, and was in turn, quickly selling (aka “turning over inventory”) the vehicles as they came into his possession. Again, possession is 9/10ths of the law. Here’s an excellent article from the Vermont Law Review about the principle, and is entitled, “OWNERSHIP IS NINE-TENTHS OF POSSESSION: HOW DISPARATE CONCEPTS OF OWNERSHIP INFLUENCE POSSESSION DOCTRINES,” and is written by Martin Hirschprung, Investment Management Associate, Morgan, Lewis & Bockius LLP; J.D., University of Pennsylvania Law School (2013); Certificate of Business and Public Policy, Wharton School of Business (2013); M.A. of Rabbinic and Talmudic Studies,Beth Medrash Govoha (2010).

In the first two cases, there were two willing buyers, and Malone, who was in possession of both vehicles, acted as a broker practicing arbitrage (or, arbitrageur), and was a willing seller. Again, there are no Federal protections for willing buyers who have “Buyer’s Remorse,” which occurred in all three cases.

And in the third and final case, Malone wasn’t provided an opportunity to complete the transaction with the first party, and absconded with the vehicle, which could have constituted an act of theft, if it weren’t for the initiation of the contract of sale, which was uncompleted.

So what we have here are three pissed-off buyers, but buyers, none-the-less.

Where’s the crime?