McDaniel v. United States

Decision Date11 May 1965
Docket NumberNo. 21202.,21202.
Citation343 F.2d 785
PartiesPaul E. McDANIEL, Appellant, v. UNITED STATES of America, Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

Charles D. Cottingham, Austin C. Wilson, Houston, Tex., for appellant, Fulbright, Crooker, Freeman, Bates & Jaworski, Houston, Tex., of counsel.

James R. Gough, William M. Schultz, Asst. U. S. Attys., Woodrow Seals, U. S. Atty., Fred L. Hartman, Asst. U. S. Atty., Houston, Tex., for appellee.

Before BROWN and BELL, Circuit Judges, and HUNTER, District Judge.

HUNTER, District Judge:

Appellant, together with George Mellen and several others, was indicted on July 10, 1962 on 56 counts. Count I charged the appellant and his co-defendants with conspiracy under 18 U.S.C.A. § 371 to violation of the Securities Act of 1933 and the Securities and Exchange Act of 1934. Counts 2 through 45 of the indictment each re-alleged the facts of the conspiracy by reference, and then set out a particular mailing in furtherance of the scheme in violation of Title 15 U.S.C.A. 77q(a) (1). Counts 46 through 56 involve in each instance the sale of an unregistered security through use of the mails in violation of Title 15 U.S.C.A. 77e(a) (1) and 77e(a) (2).1

The case proceeded to trial before a jury and appellant was found guilty on all counts, save and except nine (9) counts which were withdrawn by the Court from the jury's decision. A motion for judgment of acquittal and/or for a new trial was denied and sentence was imposed. On appeal defendant asserts failure of proof, errors in ruling upon evidence, and errors in connection with the charge to the jury.

Appellant does not attack the sufficiency of the evidence to support the verdict on Count I (the conspiracy charge), but strenuously attacks the sufficiency of the evidence as to all other counts. More particularly, he urges as to these counts (a) the mailing was done by outsiders who had no connection whatsoever with the alleged fraud, and (b) the scheme, if there was one, which appellant denies, in each case had reached fruition and the sales had been completed before the particular mailing occurred.

The facts relied on by the Government which the record amply supports may be generalized as follows:

Ambrosia Minerals, Inc. (hereinafter referred to as AMI) was originally organized under the name of Belmont Uncle Sam Mining Company in 1926. It was entirely inactive and without assets or liabilities for at least ten years prior to April 19, 1956, when control of it was acquired by appellant McDaniel and George Mellen. The apparent purpose of the acquisition was to utilize AMI as a vehicle for the acquisition of various other companies. As a result of acquisitions and mergers, substantial blocks of unregistered AMI stock were issued and ultimately distributed to the public by appellant McDaniel and Mellen, who either controlled several of the companies acquired by or merged with AMI, or had an interest in them. The books and records of AMI indicate that the company never operated at a profit. Nevertheless, McDaniel and Mellen, in order to induce investors to purchase the securities of AMI, artificially stimulated the market in this stock, made false and fraudulent statements, distributed false and misleading brochures, press releases, etc., and caused dividends to be issued which were not in conformity with law.

Given the conclusions as found by the jury, well documented by the record, and not contested on appeal that McDaniel was an active participant in the scheme, his argument that he was not shown to have used the mails, and that the mails were not used until after the sales had been consummated, cannot prevail. The record is replete with evidence that the mails were used regularly. The Government presented witness after witness who testified that they had purchased stock in the swindle and had received the confirmations, and in some instances the registered stock through the mails. This was not a mere incidental use of the mails or a use made by outsiders after the fraud was consummated. The mails here were used during the scheme and afterwards. It may not have been clearly shown that the appellant knew that the confirmations and stock certificates were to be mailed, but the mailings were such an integral part of the transactions that the use of the mails for their delivery should have been foreseen and contemplated.

The evil at which the Securities Act is directed is the fraud in the sale of securities. That being the congressional purpose and intendment to be covered, the impact of fraud in relation to sales should be considered in making practical application of the Act to a given set of facts. In other words, a scheme to defraud in relation to a sale of securities, and the use of the mails in consummation thereof, is the gist of the crime. The use of the mails need not be central to the scheme to defraud. United States v. Sampson, 371 U.S. 75, 83 S.Ct. 173, 9 L.Ed.2d 136 (1962); Pereira v. United States, 347 U.S. 1, 74 S.Ct. 358, 98 L.Ed. 435 (1954); United States v. Sheridan, 329 U.S. 379, 67 S.Ct. 332, 91 L.Ed. 359 (1946); United States v. Cashin, 281 F.2d 669, 2 C.C.A. (1960); United States v. Monjar, 47 F.Supp. 421 (D.C.Del.1942), aff'd 147 F.2d 916 (3 C.C.A.1944), cert. den. 325 U.S. 859, 65 S.Ct. 1192, 89 L.Ed. 1979 (1945).

Pereira, supra 347 U.S. 1, 74 S.Ct. 358, is particularly applicable to the facts here. There, the Supreme Court said:

"Where one does an act with knowledge that the use of the mails will follow in the ordinary course of business, or whether such use can reasonably be foreseen, even though not actually intended, then he `causes\' the mails to be used."

Appellant relies chiefly on Kann v. United States, 323 U.S. 88, 65 S. Ct. 148, 89 L.Ed. 88; Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4 L. Ed.2d 1277; Getchell v. United States, 282 F.2d 681, 5 C.C.A. These cases are patently distinguishable on their facts and the law applicable, and this is made manifest when we realize that here the mails were used prior to, and as a step toward, the receipt of the fruits of the fraud. To paraphrase from the Supreme Court's holding in Sampson (371 U.S. 75, 83 S.Ct. 173), we are unable to find anything in Kann or Parr or Getchell that suggests an automatic rule that a deliberate, planned use of the mails after the victim's money had been obtained can never be for the purpose of executing the scheme. It matters not whether McDaniel himself did the mailing; the use of the mails by his brokers must have been fully contemplated by him, and attributed to him. We are, of course, required to view the evidence in the light most favorable to the prevailing party, and viewed in that light we unhesitatingly conclude that there was substantial evidence in the record to support the conviction on each count.

Appellant vigorously insists that the admission of Government's Exhibit 986 entitled "Transactions Detrimental to Ambrosia Minerals, Inc." into evidence was error. The exhibit was received during the testimony of John V. Person, who as President of AMI had directed that the document be prepared. Person testified that it was prepared strictly as an office memorandum and that it was a record of the company made in the course of the business of the corporation. It was prepared by various officers of the company. Appellant was a member of the Board of Directors of AMI at the time it was resolved to instigate the investigation and this exhibit is the fruit of that investigation. Business corporations often do considerable self-analysis in order to keep a taut ship. The document was originally offered as an admission against Haynes. Despite his objection to the use of the term "admission," counsel for Haynes joined in the offer of the exhibit. After further colloquy, the Court admitted the document under the Federal Business Record Act, 28 U.S. C.A. § 1732(a).2

Counsel for McDaniel relies heavily on Palmer v. Hoffman, 318 U.S. 109, 63 S.Ct. 477, 87 L.Ed. 645. In Palmer the Supreme Court affirmed the Court of Appeals for the Second Circuit, which had in turn...

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