328 F.2d 854 (2nd Cir. 1964), 192, United States v. Benjamin
|Docket Nº:||192, 28404.|
|Citation:||328 F.2d 854|
|Party Name:||UNITED STATES of America, Appellee, v. Martin BENJAMIN, Bernard Howard and Milton Z. Mende, Defendants-Appellants.|
|Case Date:||February 17, 1964|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued Dec. 4, 1963.
[Copyrighted Material Omitted]
Menahem Stim, New York City (Curran, Mahoney, Felix & Stim, New York City) (Allen S. Stim, John F. Kelly, New York City, of Counsel), for appellant Bernard Howard.
Arthur Addess (Bobick & Deutsch, New York City) for appellant Milton Z. Mende.
Irwin L. Germaise, New York City, for appellant Martin Benjamin.
Neal J. Hurwitz, New York City (Robert M. Morgenthau, U.S. Atty. for the Southern District of New York, John S. Martin, Jr., Asst. U.S. Atty., of Counsel), for the United States of America.
Before MOORE, FRIENDLY and KAUFMAN, Circuit Judges.
FRIENDLY, Circuit Judge.
This appeal concerns another of those sickening financial frauds which so sadly memorialize the rapacity of the perpetrators and the gullibility, and perhaps also the cupidity, of the victims. It is unusual in that the vehicle, American Equities Corporation, owned nothing at all-- and, in a happier sense, in that the SEC was able to nip the fraud quite early in the bud. The appellants are Milton Mende, the principal promoter, Martin Benjamin, his lawyer, and Bernard Howard, a certified public accountant. After trial in the District Court for the Southern District of New York before Judge Palmieri without a jury, all three were convicted of conspiring willfully by use of interstate commerce to sell unregistered securities and to defraud in the sale of securities, in violation of the Securities Act of 1933, §§ 5(a) and (c), and 17(a), 15 U.S.C. §§ 77e(a) and (c), and 77q(a), sections which are implemented criminally by § 24 of the Act, 15 U.S.C. § 77x. Mende and Benjamin were convicted also on three substantive counts for using the mails in furtherance of the fraudulent schemes in violation of 18 U.S.C. § 1341. As their sentences on the latter counts were the same as those on the conspiracy count and run concurrently with them, and as we are satisfied that their conspiracy conviction was proper, we need not concern ourselves with the mail fraud counts. Lawn v. United States, 355 U.S. 339, 362, 78 S.Ct. 311, 2 L.Ed.2d 321 (1958).
Since the principal claim of Howard and Benjamin relates to the sufficiency of the evidence against them, it is necessary to give some description of what went on. The scheme began in December, 1960, when Mende, then in Nevada, arranged to be put in touch with a Reno attorney, McDonald, who was reported to
have some 'old corporations prior to 1933' for sale. Mende's interest in corporations of such vintage was due to § 3(a)(1) of the Securities Act of 1933, 15 U.S.C. § 77c(a)(1), which confers an exemption from the need for registration on
'Any security which, prior to or within sixty days after May 27, 1933, has been sold or disposed of by the issuer or bona fide offered to the public, but this exemption shall not apply to any new offering of any such security by an issuer or underwriter subsequent to such sixty days.'
He was especially attracted by a 1919 shell, then bearing the rather appropriate name of Star Midas Mining Co., Inc. Authorized to issue 1,500,000 shares with a par value of 10¢ per share, Star Midas had approximately 964,000 shares outstanding, nearly all owned by a so-called 'Mahoney group.' It had no assets. After arranging to purchase the Mahoney holdings for $5,000 plus a $1,500 fee, Mende instructed McDonald to change the corporate name to American Equities Corporation and to increase the authorized capital to $1,500,000 by raising the par value to $1 per share. Before closing the purchase, the funds for which were not yet available, Mende, with McDonald's cooperation, bought stock certificates and a seal reflecting these changes. The purchase was not completed until February 23, 1961, when McDonald, having previously caused appropriate resolutions to be adopted and new officers and directors of Mende's selection to be named, turned over to Reiss and Kovaleski, as Mende's representatives, the books and records of the corporation and stock certificates for the 890,000 shares owned by the selling group. At this time the name of the corporation was changed.
Mende had not waited to acquire the American Equities shares before starting to sell them. In mid-January, 1961, he ordered an additional supply of stock certificates from a Los Angeles printer. By entering a bid to buy shares he arranged for American Equities to appear in the pink and white sheets of the National Quotation Service at a price of something over $5 per share. Robert Drattell, president of Lawrence Securities, Inc., which was inactive because of financial difficulties, testified that Benjamin then sought to interest him in selling shares of a corporation whose alleged assets corresponded with those later shown in statements of American Equities. Benjamin indicated that if Drattell would cooperate, he might be in a position to find some way to make capital available to Lawrence Securities. Later in January, Benjamin had Drattell come to a New York hotel to meet Mende, who told Drattell and Reiter, another broker, in Benjamin's presence, that American Equities 'was a holding corporation that had property, various types of property all over the United States, assets of about six and a half million dollars, liabilities of about three million dollars.' Mende whetted Drattell's appetite, as Benjamin had already done, by indicating he would help to get Lawrence Securities back on its feet. Drattell said he 'would need letters of opinion' and 'certified financial statements,' and also would need to see the transfer records which, Mende told him, were kept by 'a certified public accountant out on the Coast.'
Benjamin speedily filled one of Drattell's demands by handing him a signed opinion, dated January 28, 1961, headed 'To Whom It May Concern: American Equities Corporation.' It recited that the corporation was organized in May, 1919, 'and there was at that time issued to the public, 963,067 Shares.' It went on to say that in Benjamin's opinion 'the aforesaid shares are presently free and tradeable pursuant to' § 3(a)(1) of the Securities Act which it quoted, and reiterated:
'In view of the foregoing section, and further in view of the fact that the original issuance of the 963,067 Shares in May of 1919, falls directly within Section 3(1) of the Securities Act of 1933, and is therefore, in my opinion, free and tradeable.'
On January 28, Benjamin with Reiter and another broker, Parks, went to Los Angeles. Mende gave 4,000 shares of American Equities to Parks and 20,000 shares to Reiter, and also handed Reiter 5,000 shares to be given to Drattell. The latter used these to obtain from the Empire Trust Company a $12,500 loan, $3,500 of which went to bolstering Lawrence Securities' depleted capital account and the balance to Reiter, Mende and Mende's wife; Drattell sent a confirmation, dated January 31, 1961, of the 'purchase' of these 5,000 shares for $9,000 to 'Martin Benjamin Trustee.' Later, after Drattell had gone to California to view some of the supposed assets of American Equities, he and Benjamin visited the office of Reiss, the transfer agent, where Benjamin prepared two letters. One, signed by Reiss, advised as to the 5,000 shares given to Drattell 'that said certificates is free stock and is not investment stock'; 1 the second, dated back to January 31, and signed by 'Martin Benjamin Trustee,' purported to evidence the 'sale' of the 5,000 shares for $9,000 and directed the distribution to Reiter and Mrs. Mende that had already been made.
Reiter and Parks had also brought from California copies of a paper with a printed cover entitled 'American Equities Corporation.' This contained an unidentified 'Pro Forma Balance Sheet' as of November 30, 1960, in fact prepared by Reiss, 2 and a sheet of descriptive material, a draft of which the judge could reasonably have found to have been written out by Benjamin. The first numbered paragraph of this recited that American Equities was 'a diversified investment company formed in the State of Nevada in 1919' and that its holdings consisted of '8 Apartment Houses, 2 Hotels, 2 Office Buildings (all located in Detroit area, Michigan)' with a 'gross income from the properties' of $1,061,406.51 and net income of $200,000. This was completely false; the company owned no real estate in Detroit or elsewhere. Three subsequent paragraphs gave facts and figures as to the Outpost Inn, in Arizona, Biesmeyer Boat & Plastic Co., also of Arizona, and Stanford Trailer and Marine Supply Co., of California; the description did not say just what was American Equities' interest in these companies and the only elucidation in the balance sheet was in a note indicating that the price of the Outpost Inn would be $71,000 in cash and a $79,000 note, the former being separately shown as a liability. In fact, no arrangements of any kind had been made as to the Outpost Inn, and the owner of Biesmeyer testified that in December, 1960, he had agreed to give Mende an option for a down payment of $10,000 which was never made; we are not informed as to Stanford Trailer and Marine. Finally the description stated that American Equities 'has acquired a working interest of 68% Of the California Molded Products,' whose 1961 sales were estimated at $2,000,000 with a gross profit margin 'in excess of 30.1% With a potential of 32% By April, 1961,' and that American Equities was negotiating to acquire still other companies, one 'doing in excess of $20,000,000.00 annually.' In fact, and to Benjamin's knowledge, American Equities had not acquired any interest in California Molded Products; all it had was a month's option, dated January 16, 1961, to...
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