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United States v. Amick

January 22, 1971


Fairchild, Cummings and Kerner, Circuit Judges.

Author: Fairchild

FAIRCHILD, Circuit Judge.

These are appeals by eleven individuals and two corporations from judgments of conviction of violations of 15 U.S.C. § 77q (Section 17 of the Securities Act of 1933, Fraudulent interstate transactions). Eight of the individual appellants and the corporations were convicted by a jury.*fn1 The other three individual appellants were convicted upon pleas of nolo contendere. Others were named in the indictment, but entered pleas or had separate trials, and are not involved on these appeals.

The charges arose out of sales of the common stock of Air & Space Underwriters, Inc. (ASU). ASU was newly formed and contemplated a business (through a subsidiary) of manufacturing and selling gyroplanes. A gyroplane is similar to a helicopter in that each has a rotor wing. The gyroplane's rotor, when in flight, is free wheeling and not powered. Forward motion is generated by a propeller. A helicopter's rotor, on the other hand, is powered in flight and has forward motion as a result. ASU took over the development of the gyroplane from Umbaugh Aircraft Corporation pursuant to a plan of reorganization of that company, approved in a Chapter X proceeding by a federal district court in Florida. There is evidence that the gyroplane to be produced could land and take off without a runway, and could carry a passenger in addition to the pilot. It was hoped that it could be produced at a price which would make it feasible for various types of business and personal transportation uses.

ASU stock was sold to investors in Indiana from August 14, 1963 until July, 1965 when the SEC obtained an injunction. The prices paid by investors during this period aggregated $2.1 million. 15 gyroplanes were produced and sold.

It appears, virtually beyond dispute, that during this period the effort to promote sales of ASU stock included general releases and individual communications which contained untrue statements of material facts, omitted material facts necessary to make the statements made not misleading, and included devices to defraud and practices which would operate as a fraud upon the purchaser. The areas of misrepresentation included the price at which the plane could be sold, progress toward production, orders on hand, and the financial history and condition of ASU. The details will not be stated except as required in discussion of particular counts. There was abundant evidence of pattern of conduct, plan, and design from which a jury could find that the false and misleading assertions, to the investing public by way of the media, including the Indiana Investor in particular, and to prospective purchasers by sales literature and individual sales efforts, constituted a scheme to defraud, changing in content from time to time. The ultimate question is whether the appellants were properly found criminally responsible for wilfully having employed such scheme or wilfully having obtained money by means of such misrepresentations.

Appellants challenge the indictment on several grounds, and make other attacks on procedure. Those who stood trial argue that the evidence was insufficient to support the respective guilty verdicts.

1. The challenge to the array of the grand jury. All appellants contend that the grand jury which indicted them was unlawfully selected. Appellants who stood trial assert the same defect with respect to the petit jury. The challenge is made to an early step in the system by which most names were selected for the jury list from which the names of veniremen were drawn. Documents were placed before the district court in support of and opposition to the challenge. Most of them were the same as those described and considered by Chief Judge Steckler of the same court in overruling a similar challenge at about the same time.*fn2

Appellants rely principally on statements appearing in Rabinowitz v. United States*fn3 although there was no showing in the instant case suggesting the virtual exclusion or gross under-representation on the jury list of any group or class of residents of the district or division.

The names of prospective grand jurors were drawn from among 1,200 names, at least 300 being on the jury list in each of four divisions. The names of prospective petit jurors were drawn from the 300 on the list in the Indianapolis division. The division lists were maintained at 300 by addition from time to time of names of persons who had answered questionnaires and been found qualified and not exempt. Most of the names of the larger number to whom the questionnaires had been sent were supplied by so-called key men who were asked by the clerk and jury commissioner to supply them.

As needed, the clerk and jury commissioner sent a form letter to key men in the counties in the district. According to an affidavit by the clerk, the key men were persons "who were thought to be widely acquainted with persons of diverse backgrounds within their own communities, and were most likely to suggest jurors representing a fair cross section of such communities."

The form letter soliciting suggestions was before the court. It stated in part that jurors must be "capable and impartial and * * * selected without regard to race, color, creed, politics or station of life." The recipient was asked "to suggest the names of men and women in your community who, in your judgment, would make qualified jurors." A sheet setting forth 28 U.S.C. §§ 1861 and 1862, listing qualifications and exemptions, was enclosed and it was said, "In making your suggestions please refer to the statutory requirements set forth on the attached sheet." Apparently about 140 key men had responded to such letters in the course of three years.

In November, 1966 several individuals interviewed 79 key men concerning the type of persons whose names each had suggested and prepared affidavits summarizing the interviews. These affidavits were before Judge Dillin as they had been before Judge Steckler. It seems fair to say in summary that most or all the key men said they had some standard in mind as to who would make a "responsible" juror. Indeed, any form of key man system of suggestion would almost necessarily involve the application of some subjective standard of that type. We do not consider, however, that either constitutional concepts or any statutes applicable in 1966 or 1967 compelled a purely random selection from the whole body of qualified persons in the community.*fn4

It appears from the affidavits that several key men acknowledged that they had not suggested names of persons belonging to particular groups or classes. Some of the reasons, e. g., that jury duty would be a hardship on poorly paid workers, that men make better jurors than women, and that young adults are too immature, would tend to establish invalidity if such reason were found to have guided most or a substantial group of key men, but we deem the degree to which these reasons operated among the total number interviewed was clearly insubstantial.

The district court, in overruling the challenge, concluded that the key man system was not invalid per se, and that the affidavits neither established exclusion of classes of qualified persons nor made a showing sufficient to require further inquiry. We agree.

2. Challenges to form and sufficiency of indictment. The first 38 counts of the indictment charged varying groups of defendants with violations of 15 U.S.C. § 77q(a). The outline is similar to the one discussed in United States v. Birrell.*fn5 Count 39 charged appellants Vollmer and Indiana Investor and Business News, Inc. (Indiana Investor) and others with violation of 15 U.S.C. § 77q(b) in publicizing ASU stock. Count 40 charged several defendants with violation of 15 U.S.C. 77e(a) (2) by mailing ASU stock without a registration statement being in effect. Count 41 charged all defendants with conspiring to commit the offenses charged in the other counts.

A number of the first 38 counts and count 40 were dismissed on motion of the government or for failure of proof. The jury acquitted various defendants on several counts among the first 38, and acquitted all defendants on count 41. The jury convicted Vollmer and Indiana Investor on count 39 and convicted one or more appellants on each of the remaining first 38 counts.

Each of the first 38 counts charged that several defendants, by the use of the mails in the offer and sale of ASU stock to a particular purchaser, wilfully (1) employed devices, schemes and artifices to defraud, (2) obtained money and property by means of untrue statements of material facts and omissions to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and (3) engaged in transactions, practices, and courses of business which would and did operate as a fraud and deceit upon purchasers, including the purchaser named in the particular count. In each count, also, the date, addressee, and content of a mailed communication were alleged.

Each of the 38 counts contained a detailed description of the manner in which all defendants allegedly accomplished (1), (2), and (3) above referred to with respect to all purchasers of ASU stock, generally. The largest part of the description set forth the history of ASU, its acquisition of the Umbaugh company, the transactions by which particular defendants became interested as stockholders, directors, officers, or underwriters of ASU, and the amounts of stock sold during particular periods of time by named groups of defendants. At trial, there seems to have been little if any dispute about the background facts so alleged.

Paragraph 2 of this description set forth fourteen statements of fact which were alleged to be false and to have been wilfully made as part of the devices, schemes, and artifices to defraud and of the transactions, practices and courses of business operating as fraud. Paragraph 3 set forth ten statements of fact, alleged to have been omitted, but necessary to make the statements made not misleading. Each list was said not to be exclusive.

The detailed description just referred to alleged a course of conduct from May 15, 1963 to the date of the indictment, appeared as part of count 1, and was incorporated by reference in each of the following 37 counts.

Several attacks are made upon the indictment. We find no merit in them, and point them out briefly, as follows:

Vagueness : The indictment dealt with a subject matter sufficiently complex that care is required in reading it, but it is not vague. In each of the first 38 counts several defendants are charged in the terms of the statute with wilfully performing the proscribed acts in the offer and sale of ASU stock to a named purchaser, and the incidental use of the mails is described. As already mentioned, each count contained a general description of the background and a list, though not exclusive, of fraudulent statements and omissions, alleging conduct continuing generally throughout two years, although the transactions and some of the misrepresentations took place at different times within the two year period. The dates of mailing in all counts fell within that period.

The indictment "contains the elements of the offense intended to be charged, 'and sufficiently apprises the defendant of what he must be prepared to meet, and, in case any other proceedings are taken against him for a similar offense, whether the record shows with accuracy to what extent he may plead a former acquittal or conviction.'"*fn6

Incorporation by reference : It happened that count 1, in which the general description of the background and of the fraud was expressly set out, was dismissed for failure of proof. Several appellants contend that dismissal erased the count so that the portion of each other count incorporating part of count 1 by reference incorporated nothing. They claim it follows that without the incorporated part of count 1, all other counts ceased to charge an offense. The latter proposition is not clear but in any event we reject the argument that the counts must be read as if the incorporated material ceased to exist upon dismissal of count 1.

Duplicity : 15 U.S.C. § 77q(a) makes it unlawful, in the offer or sale of securities, by the use of the mails, to engage in certain conduct. The proscribed conduct is described as (1), (2) or (3).*fn7 Each count of the first 38 charges that defendants engaged in (1), (2), and (3). It is argued that each count charges three distinct offenses.

An answer was suggested by Crain v. United States.*fn8 There the "statute was directed against certain defined modes for accomplishing a general object, and declaring that the doing of either one of several specified things, each having reference to that object, should be punished. * * * We perceive no sound reason why the doing of the prohibited thing in each and all of the prohibited modes, may not be charged in one count, so that there may be a verdict of guilty upon proof that the accused had done any one of the things constituting a substantive crime under the statute."

The Crain rationale has, correctly, we think, been applied to the offenses now under consideration:

"The statute thus embraces in the disjunctive three separate and distinct acts as a crime. The indictment charges the three offenses in the language of the statute, but they are charged in the conjunctive. An indictment charging a statutory offense must follow the statute creating it; but where the statute denounces several acts as a crime, they may be charged in one indictment or in a single count if they are connected in the conjunctive. An indictment drawn in that manner is not duplicitous, and it suffices to prove any one or more of the charges. [citing cases.]"*fn9

Multiplicity : Appellants argue that the allowable unit of prosecution is participation in the allegedly fraudulent course of conduct, and that any particular use of the mails in connection with any particular sale is only a jurisdictional fact upon the basis of which participation in the overall course of conduct can be federally prosecuted; that the first 38 counts allege no more than one offense.

Courts have differed as to "the allowable unit of prosecution"*fn10 under this statute.

There is authority for the view (1) that, as is true of mail fraud, each separate use of the mails in the execution of a scheme to defraud in the sale of securities constitutes a separate offense;*fn11 (2) that each separate offer or sale transaction in which the proscribed conduct is employed and the mails used is the allowable unit;*fn12 (3) that where an indictment charges employment of proscribed conduct in separate transactions as separate counts, the determination whether there was one offense with several victims or a separate offense upon each victim can ordinarily not be made until proof is in;*fn13 (4) that where an indictment alleges a scheme to defraud and a number of separate mailings and sales in separate counts, but fails to show that the crime charged in any one count differs from that charged in the others, all counts are to be consolidated and all but one dismissed as separate counts.*fn14

The counts in this indictment charged not only separate mailings, but separate sales, so that neither (1) nor (2) would require dismissal of any count. Under (3) dismissal before trial would be inappropriate, and the question need be considered only with respect to cumulative penalties on several counts. We consider (3) a sounder view than (4).*fn15 We hold that the district court properly refused to dismiss or consolidate counts before trial, and shall give further consideration to the matter when we reach the claim that consecutive sentences were inappropriate.

3. Joinder. Various appellants contend that offenses and defendants were improperly joined, and that in any event discretionary severance should have been granted.

Rule 8(a) F.R.Cr.P. allows joinder of two or more offenses in separate counts in one indictment "if the offenses charged * * * are of the same or similar character or are based on * * * two or more acts or transactions connected together or constituting parts of a common scheme or plan." There can be no question of the propriety of joining the first 38 counts in one indictment. Count 39 charged wilfully, by use of the mails, giving publicity to and describing ASU stock for a consideration received from an issuer, underwriter, and dealer without fully disclosing the receipt and amount of the consideration. Count 40 (later dismissed) charged wilfully causing ASU stock, an unregistered security, to be carried through the mails for sale and delivery. Count 41 (upon which all appellants were acquitted) charged a conspiracy to commit the other offenses. All the substantive offenses were violations of the securities act, involved the same security, and were alleged to have occurred during the duration of the alleged conspiracy. We have no doubt that at the least the acts and transactions upon which all 41 counts were based were "connected together or constituting part of a common scheme or plan." Joinder of the offenses was authorized by the rule.

Rule 8(b) permits joinder of two or more defendants if they are alleged to have participated in the same series of acts or transactions constituting an offense or offenses. All defendants need not be charged in each count. We think the acts and transactions alleged in the first 38 counts, and in counts 39, 40, and 41 may be deemed one series of acts or transactions for the purpose of this rule.

Several appellants contend that they were prejudiced by joint trial and that the district court abused its discretion in denying motions for severance under Rule 14, F.R.Cr.P.

We do not find it so. It is true that the proof was voluminous (4,000 pages of transcript, covering four weeks of trial, and more than 1,000 exhibits, at least marked for identification). Several appellants were securities salesmen, while others occupied positions of greater responsibility and authority. Several appellants were active in sales of ASU stock during periods when other appellants were not. On the other hand, there was also considerable overlapping in time. The proof was orderly and as chronological as reasonably possible, and the court gave frequent cautionary instructions. As will be seen when sufficiency of the evidence is discussed, the jury was capable of discernment among counts and among defendants.

We consider the trial fundamentally fair.

During the investigation by the SEC various defendants had given testimony pursuant to administrative subpoenas. Transcripts were received by the court, but were not put before the jury except as excerpts were read. In each case the court instructed the jury that the excerpt was to be considered only against the defendant who made the statement.

Appellant Broderick contends that he was denied the right of confrontation and cross-examination*fn16 by such reading. He fails to specify the portions of statements of his codefendants which incriminated him. His name was apparently mentioned only in the portion read from appellant Olsen's SEC testimony. Olsen did not testify. These references established Mr. Broderick's presence at several conversations or occasions only generally described, and if they could be deemed incriminating in any sense, they were merely cumulative and the error, if any, harmless beyond a reasonable doubt.

These excerpts were not highly incriminating with respect to the person testifying except as they laid a foundation for an inference that the person knew the state of affairs was different from that which was represented to purchasers. In instructing the jury that these excerpts must be weighed with caution and the circumstances scrutinized to determine whether they were made voluntarily, the court referred to them several times as "statements" and once as "alleged admissions". Several appellants contend that the latter characterization was prejudicial. We do not find it so.

4. Pretrial publicity and voir dire. Certain appellants contend that prejudicial pretrial publicity required the court to dismiss the indictment or postpone the trial. There had been news stories concerning the indictment, about a year before trial. Two days before trial there had been two news stories. One referred to a "stock swindler" and concerned an unrelated indictment. Another reported the nolo contendere ...

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