286 F.2d 152 (10th Cir. 1961), 6346, Burns v. United States
|Citation:||286 F.2d 152|
|Party Name:||J. Phil BURNS, Appellant, v. UNITED STATES of America, Appellee.|
|Case Date:||January 06, 1961|
|Court:||United States Courts of Appeals, Court of Appeals for the Tenth Circuit|
Rehearing Denied Jan. 23, 1961.
Coleman Hayes, Oklahoma City, Okl. (Lynn J. Bullis, Jr., and Monnet, Hayes, Bullis, Grubb & Thompson, Oklahoma City, Okl., of counsel, were with him on the brief), for appellant.
Erwin A. Cook, Asst. U.S. Atty., Oklahoma City, Okl. (Paul W. Cress, U.S. Atty., Oklahoma City, Okl., was with him on the brief), for appellee.
Before BRATTON, PICKETT and BREITENSTEIN, Circuit Judges.
BREITENSTEIN, Circuit Judge.
Appellant Burns, four other individuals and two corporations were prosecuted under a 31-count indictment charging violations of the Securities Act, the mail fraud statute, and the general conspiracy statute. The jury found Burns and one corporation guilty on the 15 counts under the Securities Act and not guilty on all other counts. Three of the other individuals and one corporation were convicted on all counts and one individual was acquitted on all counts. Burns was sentenced to five-year concurrent terms on each of the 15 counts of which he was convicted. He alleges as grounds for appeal the insufficiency of the evidence, the improper exclusion of certain evidence, and errors in the instructions.
The material portion of the Securities Act forbids the sale of any securities by the use of the mails in furtherance of a scheme to defraud. 1 The indictment relates to the sale of 'certificate-bonds' which were issued by Selected Investments Corporation, an Oklahoma company, and which were securities within the purview of the act. Fourteen of the counts with which we are concerned charged the mailing of dividends checks and a copy of 'Selected Investment News' and the remaining count charged the mailing of an identified letter. Burns and his co-defendants stipulated that the document or documents referred to in each of the 15 counts were in fact mailed. The evidence as to the scheme to defraud is overwhelming. The question of the sufficiency of the evidence to sustain the conviction of Burns goes only to the participation of Burns in the scheme to such
an extent that he was responsible for the mailings which were made by others.
Selected Investments Corporation was organized about 1930 by co-defendant Carroll. It engaged in the sale of 'certificate-bonds,' the proceeds from which were assertedly placed in a trust fund pursuant to a trust indenture and were invested in various securities and 'satellite' enterprises. In 1937, Carroll and another co-defendant, Riggs, organized United Securities Agency for the purpose of selling the certificates issued by Selected. The next year Burns who had for a short period been a vice-president and director of Selected resigned those offices and became president of United. By agreement between Selected and United, the latter had an exclusive contract for the sale of Selected certificates and handled all of such sales except for occasional sales made by officers of Selected.
United received commissions varying from 8 1/2% To 10% For the sale of these certificates and split these commissions with Selected on a varying basis. A total of $51,000,000 of Selected certificates were sold to some 9,000 Oklahoma investors. The participation of United in such sales is shown by the fact that at the beginning of 1938 there were some $446,000 of certificates outstanding and when sales ceased in December, 1957, this had increased to over $39,000,000. For such sales United received commissions of over $6,100,000, of which it retained some $3,480,000 and paid to Selected $2,615,000. 2
The trustee who ostensibly had control of the trust into which the sale proceeds were placed was an employee of Selected and acted under the supervision of its officers. Moneys received from certificate sales were placed in the trust and United was then paid its sales commissions. Six per cent annual dividends were paid to certificate holders in quarterly installments. Selected was paid a 2% Management fee. It was represented that such dividend and management fee payments were made only out of earnings whereas, in fact, they were in many years paid in whole or in part out of capital. 3 Certificates were redeemed at face value whereas the actual value was substantially less. The redemption of certificates stopped on December 1, 1957, and the sale of certificates was discontinued on December 8, 1957. State court receivership and federal bankruptcy proceedings followed early in 1958.
A detailed recitation of the operations of the Selected enterprise will not be helpful. It is enough to say that the record discloses a cleverly executed fraud of surprising longevity in which untrue statements of material facts and concealment of material facts were used to must the unwary investor. Our only concern is the participation of Burns in the fraudulent scheme.
For over 20 years Burns was associated with the convicted but not appealing co-defendants. As president of United he was the master salesman of Selected certificates and at times had 60 salesmen working under him. He trained them and distributed to them the Selected brochures and pamphlets which they used. By his own admission he attended about half of the directors' meetings of Selected and did so to obtain information 'to pass on to the sales representatives over the state in order that our clients may have authentic and reliable facts concerning the company.' The sales material stated that 6% Dividends and a 2% Management fee were paid from earnings when in fact they were not so paid. Although he knew that United received a sales commission varying from 8 1/2% To 10%, he represented and approved representations that invested money went into a trust fund and that the managing company paid all operating expenses. At meetings of investors he represented that the satellite companies were profitable enterprises although he was on the board
of directors of one of those satellites which lost over $900,000 in a 6-year period.
On June 24, 1957, the Commissioner of Internal Revenue ruled that the dividend payments by Selected could not be deducted from taxable income for federal income tax purposes and that Selected was subject to taxation as a corporation. 4 In July, 1957, Carroll, the president of Selected, told Burns of this ruling. Yet, in the period from June 26 to December 8, 1957, United made 2,490 sales of certificates in the aggregate amount of $2,558,000 on which United received as its share of commissions $150,719. In September and October, 1957, Burns held meetings of investors to promote sales of certificates and did not disclose the tax ruling. After knowledge of the tax ruling, Burns cashed in $25,000 of certificates held by him. 5
By his own admission Burns attended a series of meetings in the office of the president of Selected on November 18, 19 and 20, 1957, at which it was agreed to 'freeze' redemptions of certificates on December 1, 1957, but to continue sales through January 1, 1958. In connection with sales it was agreed that the 'asset value' would not be discussed when selling. At these meetings auditors stated that the 'asset value' of the certificates was 77-78% Of the face value. Following these meetings and between November 26 and December 8, 1957, United made 150 sales of certificates in the aggregate amount of $127,000 on which it received commissions of $7,001. Burns did not tell his salesmen of the tax ruling until December 8, 1957.
In the circumstances presented by the record it seems incredible that Burns could have been so artless and naive as not to have...
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