I'm probably in the middle between Judge Betty Fletcher -- who seems certain that there's error and that it's not harmless -- and Judge Milan Smith, who seems certain that there's neither error nor harm. See where you fall in this case.
I generally agree with Judge Fletcher that we should be hesitant to allow the prosecution to introduce evidence involving other charges. If this evidence establishes a modus operandi or something like that, okay, but normally, that stuff's more prejudicial than probative. We don't want the jury to convict on the basis of the defendant's character, or other conduct. We want 'em focusing on the charge at issue, and not be distracted by other stuff.
At the same time, however, there's a pretty good argument that the prosecution here was introducing the previous charge for a much more limited issue -- one that went entirely to intent. Prior to the charges at issue, the SEC charged defendant with very similar conduct. Sure, there wasn't much evidence that the prior charges were actually true (though, even on this limited point, I think Judge Fletcher somewhat minimizes the available evidence, particularly the reasonable inferences derived from the testimony of the key witness). But that's arguably not the point. The point was to show that the defendant knew what SEC Rule S-8 required -- a key issue at this trial -- and that defendant had been previously charged with such an offense seems pretty relevant to that point.
Imagine, for example, a defendant charged with running a red light who says he thought (erroneously) that he was permitted to do so because he was rushing to get his pregnant wife to the hospital. In that case, the prosecution wants to introduce evidence that, one year ago, he was prosecuted for doing the same thing -- running a red light to take his pregnant wife to the hospital. Judge Fletcher says that to allow such evidence the prosecution has introduce evidence that the defendant was, in fact, guilty on the earlier occasion. But I don't see why. The evidence's introduced to show that the defendant knew -- or more likely knew -- that having a pregnant wife wasn't an excuse, because he was charged in a prior offense, which likely put him on notice as to the actual contents of the law regardless of whether he in fact ran the red light on the prior occasion. The prosecution's just trying to prove knowledge, not whether he actually did it.
You still have to do the 403 prejudice test, of course. But it's relevant, and so Judge Fletcher's holding that it's inadmissible unless the prosecution introduces evidence that he was actually guilty on that prior occasion seems a bit misguided.
On a less doctrinal front, I also don't entirely share Judge Fletcher's cynical view of the prosecution's key witness. He's a classic "flipped co-conspirator" witness. Yes, he's a felon. Yes, he lied on his tax return. Yes, he's getting benefits in sentencing in return for his testimony. (And, yes, allegedly he had a falling out with the defendant after he hit on the defendant's daughter -- something you don't usually see in these sorts of cases.) So all of these admittedly require a credibility call, but I don't think that the witness here is any less credible than the usual "snitch" witnesses, and indeed, he's a lot more credible than lots of the "he spontaneously confessed to me when he was in the jail cell next to me" witnesses you constantly read out in criminal cases. In fact, on paper, I think the witness is likely telling the truth. Yeah, he only testified because he got caught, but that doesn't make his testimony any less true. So I don't share the suspicious, somewhat anti-snitch tone with which Judge Fletcher describes this testimony.
At the same time, however, I think it's a close case. Judge Smith not only thinks there's no error, but that it's harmless anyway. Could be. But it's a total credibility call. If this error is harmless, then they all are. We might as well do away with trials and just resolve these things on the papers. Seems like you need a jury to decide who's telling the truth.
Even though, if it's me, I tend to believe the prosecution -- and its key witness -- on this one. Seems to me that Bailey's trying to illegally circumvent the SEC investment rules.
But I guess the jury can decide that on remand. Without hearing about the prior charges.