United States v. Vandersee

• Decision Date: 27 May 1960
• Docket Number: No. 12994.,12994.
• Citation: 279 F.2d 176
• Parties: UNITED STATES of America, Appellee, v. Arnold E. VANDERSEE, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

279 F.2d 176 (1960)

UNITED STATES of America, Appellee, v. Arnold E. VANDERSEE, Appellant.

No. 12994.

United States Court of Appeals Third Circuit.

Argued April 5, 1960.

Decided May 27, 1960.

Rehearing Denied July 6, 1960.

Robert D. Corbin, Jersey City, N. J., for appellant.

Jerome D. Schwitzer, Asst. U. S. Atty., Newark, N. J. Chester A. Weidenburner, U. S. Atty., Jerome D. Schwitzer, Raymond W. Young, Asst. U. S. Attys., Newark, N. J., for appellee.

Before McLAUGHLIN, STALEY, and FORMAN, Circuit Judges.

McLAUGHLIN, Circuit Judge.

The defendant appeals from conviction under an indictment charging him with devising and employing a fraudulent scheme in violation of the Securities Act, 15 U.S.C. § 77q(a) (1), and for use of the mails in furtherance thereof (18 U.S.C. § 1341).

The indictment originally contained fifteen counts each of which named a different person or persons against whom the defendant's acts were directed. Four of the counts were dismissed by the court. The defendant was found guilty by the jury on the remaining eleven. He was sentenced to five years imprisonment with a fine of $5,000 on the first count and three years imprisonment on each of the remaining ten counts to run concurrently with each other but consecutively to the sentence imposed on the first count.

Vandersee had developed a type of metallizing machine. He claims his troubles came about from his efforts to obtain necessary financing for the commercial production of the machine.

Appellant came upon the business scene in 1946 when he organized the Vande Manufacturing Company in Chicago for the ostensible purpose of manufacturing and selling his metallizing "gun". One Harry Dieringer testified he invested between $45,000 and $50,000 in the company. In 1948 this promotional attempt was dropped after only six guns were assembled, none of which were sold. In 1951 appellant organized the Vandersee Engineering Company, Inc. under the laws of Delaware and operated out of Texas. Three Texas investors testified to investments totalling $8,850. Not a single gun was produced. Appellant subsequently created a Puerto Rican subsidiary of the corporation, with the cost of same borne in part by two Texas investors and again no guns were produced. Nineteen fifty-three found the appellant establishing his promotion in Los Angeles with the Vandersee Engineering Company, a Nevada corporation, which never commenced operations. However, newspaper advertisements and personal solicitations brought appellant investments totalling $17,500 and a conviction of violating California's labor laws. Vandersee prudently departed from California and upon reaching New Jersey organized the Vandersee Corporation.

As a result of advertisements in The New York Times, four investors, Carl Nelson, Glen Matter, David D. Gill and Henry J. Mason, turned over $12,000 to appellant and in return were made officers and directors of Vandersee Corporation. During the two year existence of this corporation, until it was closed down by order of the Attorney General of New Jersey, it moved its plant and offices from Hillside to Union, New Jersey, employed between forty and fifty people for the purpose of selling stock and gave demonstrations of the metallizing gun. Despite this activity, Vandersee Corporation managed to produce only five or six guns.

In February, 1955 notwithstanding assurances that he would form a voting trust in order to give the directors an equal voice in management, he removed the four other directors and assumed full control of the corporation. During the two years, extensive newspaper and radio advertising and mail solicitation produced investments totalling approximately $301,872.

The first point presented on behalf of appellant is that the evidence clearly showed he lacked a criminal intent and therefore the trial court should have "allowed the motion for acquittal either on the conclusion of the government's presentation or after all the evidence had been heard." It is very thoroughly argued by able court assigned counsel that there was no substantial evidence of guilt.

Intent of course is an essential element of the crimes charged and is ultimately a question of fact for the jury. The question here is of the substantiality of the evidence upon which the jury's finding was based. Fraudulent intent, although a subjective state of mind, can be inferred by means of objective standards. In Aiken v. United States, 4 Cir., 1939, 108 F.2d 182, 183 it was stated:

"Fraudulent intent, as a mental element of crime, * * * is too often difficult to prove by direct and convincing evidence. In many cases it must be inferred from a series of seemingly isolated acts and instances which have been rather aptly designated as badges of fraud. When these are sufficiently numerous they may in their totality properly justify an inference of a fraudulent intent; and this is true even though each act or instance, standing by itself, may seem rather unimportant." See also Holmes v. United States, 8 Cir., 1943, 134 F.2d 125, 134; Nassan v. United States, 4 Cir., 1942, 126 F.2d 613.

We shall enumerate only a few of the more flagrant "badges of fraud" of this much decorated defendant. A letter to the stockholders dated May 15, 1956 begins "During the past two months your company had made considerable advancement in the marketing of its products" and later proclaims "We have just completed preliminary negotiations with the Bell Telephone Laboratories * * * to conduct an extensive series of experimental tests * * *." Actually at this time no products had been marketed and the extensive series of tests was nothing more than a single experimental spraying of a cable at a cost not to exceed $500.

In October 1955, Vandersee wrote the stockholders, urging them to buy additional stock, stating "we of Vandersee Corporation are proud to proclaim that our company has emerged from the period of research and development, on our first Vanco product, to that of volume production and sales distribution." The letter continues "We have completed retail distribution in certain areas in the United States and others are presently being negotiated. Foreign distribution is being arranged in Sweden, Holland and Venezuela." In light of the facts that nothing was being produced, nothing was being sold and the only corporate activity was the sale of stock, the above can hardly be passed off as a mere exaggeration of existing conditions.

Another letter to the stockholders on February 6, 1956 announced a dividend had accrued and another was being considered, and that the price of stock advanced from $1.25 to $2.00 "and another advance will follow." The financial records provided no basis for these assertions.

This same line of gross misrepresentation was followed in brochures, radio and newspaper advertisements. As it was put in Aiken v. United States, supra 108 F.2d at page 184:

"Caution and conservatism are not usually characteristics of the corporate prospectus. But defendant here went even beyond what has now come to be known as high-pressure. For many of the statements so glowingly set forth, defendant, in the light of his knowledge about the real situation, knew there was little or no foundation in fact. The same observation is equally true as to the letters written by the defendant to those who had

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