Carroll v. United States

• Decision Date: 24 January 1964
• Docket Number: No. 18551.,18551.
• Parties: Howard P. CARROLL and H. Carroll & Co., Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

326 F.2d 72 (1963)

Howard P. CARROLL and H. Carroll & Co., Appellants, v. UNITED STATES of America, Appellee.

No. 18551.

United States Court of Appeals Ninth Circuit.

December 10, 1963.

Rehearings Denied January 24, 1964.

COPYRIGHT MATERIAL OMITTED

W. H. Erickson and C. Henry Roath, Denver, Colo., and David M. Garland, Newport Beach, Cal., for appellants.

Francis C. Whelan, U. S. Atty., Thomas R. Sheridan, Asst. U. S. Atty., Chief, Criminal Section; and John A. Mitchell, Asst. U. S. Atty., Los Angeles, Cal., for appellee.

Before BARNES and DUNIWAY, Circuit Judges, and PENCE, District Judge.

DUNIWAY, Circuit Judge.

Carroll and H. Carroll & Co., a corporation, were convicted by the verdict of a jury under each of six counts of an indictment charging them with fraud in the sale of securities in violation of section 17(a) of the Securities Act of 1933 (15 U.S.C. § 77q(a)). In their appeal they make thirteen claims of error, many of which can be considered together. We conclude that the judgment must be affirmed in part and reversed in part.

In the case of Carroll the judgment imposes a fine of $2500 concurrently on each of the six counts, so that the total fine is $2500. Imposition of sentence of imprisonment was suspended and he was placed on probation for a concurrent period of one year. Thus all of the sentence is concurrent, and consequently, under the long established rule in this circuit, if his conviction on any one of the counts is adequately supported, the judgment must be affirmed. On the other hand, in the case of the corporation, it was sentenced to pay a fine of $50 on each of the counts, or a total of $300. Thus the sentences of the corporation were not concurrent and if there is reversible error as to any count, the judgment upon that count must be reversed.

1. The sufficiency of the evidence.

Both appellants assert that the jury's verdict is not supported by the evidence. In considering this question we state the evidence in a light most favorable to the government. Glasser v. United States, 1942, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680; Mosco v. United States, 9 Cir., 1962, 301 F.2d 180; Castro v. United States, 9 Cir., 1963, 323 F.2d 683. Conflicting evidence does not change the rule; it was for the jury, not this court, to resolve conflicts.

The indictment charges that the appellants, in the offer and sale of common stock of a Nevada corporation, Comstock, Ltd., employed a device, scheme and artifice to defraud, obtained money and property by means of untrue statements of material facts and the omission to state material facts necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading. It then proceeds to outline in some detail the nature of the scheme.

Not all of the allegations of the indictment were proved, but the government did produce evidence, which, if believed by the jury, would permit it to find that the appellants, in the sale of the stock, did do certain things charged. They used, in selling the stock, a brochure which contained untrue statements of material facts and which omitted to state material facts necessary in order to make the statements that it did contain not misleading. Investors were also told that the stock was being sold to them at the then current market price but were not told that the market price was an artificial one created by appellants, or that this was done for the purpose of enabling appellants to sell, at a substantial profit, a block of stock which they had a right to buy at a price well below the market price which they had created. As to all but one of the six individuals named in the six counts in the indictment, as the parties defrauded, the stock sold was a part of that block of stock.

One Alison arrived at the notion that it would be possible to go into the large scale production of charcoal from oak trees growing on a ranch located in Ventura County, California, and apparently owned by his wife. He had permitted one itinerant charcoal burner to produce a little charcoal on the place and he thought that it would be possible to use the large number of live oak trees on the property to produce charcoal in quantity. He had built one or two kilns for this purpose, but the charcoal produced was too wet and was not satisfactory. He had also acquired the right to take oak trees from some adjoining properties and he had purchased and sold some charcoal from other sources. He had made arrangements to sell some charcoal to at least one chain of markets in Los Angeles. However, the venture had not proved profitable, the ranch operation was in the bankruptcy court in a reorganization proceeding, and he needed financing.

Comstock, Ltd., was a Nevada corporation whose shares were listed on the San Francisco Mining Exchange. Arrangements were worked out whereby the charcoal operation and its assets were transferred to Comstock, Ltd. by Alison in exchange for stock. One reason for doing this was that the stock was already listed on the mining exchange, so that there would be no need to register with the Securities and Exchange Commission. A San Francisco broker named Chevrier had acquired a large block of stock of Comstock, Ltd. Alison agreed to buy 500,000 shares of this stock by giving his promissory notes, for which a single note was later substituted, in the sum of $125,000. The price was thus 25 cents a share. This stock was then transferred to an "escrow" with a corporation in Denver, Colorado, called the Security Trust and Transfer Company. The arrangement was that H. Carroll & Co., one of the appellants here, could take down these 500,000 shares from time to time at 25 cents a share.

Carroll was a stock and bond broker and he did business through H. Carroll & Co. of which he was president and the controlling stockholder. The head office was in Denver, and a branch was opened in Beverly Hills. Carroll and H. Carroll & Co. had been brought into the transaction at the time that the charcoal operation was transferred to Comstock, Ltd. and the purpose was to enable Alison to raise funds for this operation. Carroll met with Alison and others and he had one of his associates named Leopold, who was a minority stockholder in H. Carroll & Co., become a member of the Board of Directors of Comstock, Ltd. There was also a meeting in the Beverly Hills office of H. Carroll & Co., attended by Carroll, the purpose of which was to instruct the salesmen in relation to the sale of the stock of Comstock, Ltd.

One Raetz was employed and paid by Carroll or H. Carroll & Co. to prepare a brochure, a tastefully printed pamphlet entitled "Charcoal," and "A Report on One of the Fastest Growing Industries in the Country," and describing itself as a report to stockholders from Comstock, Ltd. This brochure paints a rosy picture of Alison's charcoal business and asserts that Comstock, Ltd. is the largest producer of charcoal in the West. It contains a picture of Comstock kilns designed for mechanical loading and unloading, each kiln holding 12 cords and, after ten days of burning, producing eight tons of charcoal. There is also a statement of projected production for 1957-58 indicating profits per month of over $50,000. The brochure was actually produced as a selling document; the projection of production and profits was wholly fictitious; no such kiln existed as that pictured in the brochure; many of the other statements in the brochure were, to say the least, the grossest type of exaggeration. The brochure did not state that the operation had never been profitable, as was the fact, said nothing about the escrowed stock which was available to Carroll and his company at 25 cents a share, and omitted much other information which would obviously be necessary to make the statements that it contained not misleading. A quantity of these brochures was sent to the Denver office of the appellants, and they were used by salesmen in the Beverly Hills office in selling stock of Comstock, Ltd. Several of the individuals named in the indictment as defrauded purchasers were given the brochure by salesmen for appellants.

The selling campaign occurred in the early part of 1957. During that time the appellants received from the Denver escrow at 25 cents a share about 300,000 shares of Comstock, Ltd. and of these shares over 280,000 were sold to purchasers in California. During the same period appellants were active in buying stock of Comstock, Ltd. on the San Francisco Mining Exchange, these transactions being handled through Chevrier, who was a member of the exchange. The total number of shares sold over the mining exchange during this period was 131,000 of which 87,000 were purchased by appellants at prices ranging from 27 cents to 36 cents per share.

Leopold testified that on instructions from appellant Carroll, and in his capacity as an officer of H. Carroll & Co. he sent the following teletyped message from the Denver office to the Beverly Hills office, to one Martin McIntyre who was one of the two men in charge of the Beverly Hills office:

"Marty LA this Bob you there Ga

"This me Ga

"OK kid been working like a demon Comstock will be 33-40 in few minutes as soon as exchange opens We have it worked out now and if your boys going to sell any they should do it quick like We are going to do everything in our power to maintain market at this level You should call Ralph and get his orders in We doing this at a pretty healthy expense so pls give us support out of that office Ga."

"OK Wonderful Wht price will we sell at now so as to correspond to mkt Ga

"Well I would wait ten minutes until mkt opens and then check with Aronson and see how it quoted I sure it GG to be 33-40 and you should sell at 36 or so. NY is retailing it at 40 a healthy price Yes Ga."

Comment by us seems superfluous.

Buyers of stock who testified were told by salesmen for appellants that they were buying at the market price, were given the brochure and...