427 F.2d 546 (D.C. Cir. 1969), 22174, Dallago v. United States
|Citation:||427 F.2d 546|
|Party Name:||Alfred DALLAGO, Appellant, v. UNITED STATES of America, Appellee.|
|Case Date:||November 07, 1969|
|Court:||United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit|
Argued June 16, 1969.
Mr. Jerome J. Londin, New York City, for appellant.
Mr. Arthur E. Matthews, Atty., United States Securities and Exchange Commission, with whom Messrs. David G. Bress, U.S. Atty., at the time the brief was filed, Frank Q. Nebeker, Asst. U.S. Atty., at the time the brief was filed, and Paul H. Metzinger, Atty., United States Securities and Exchange Commission, were on the brief, for appellee.
Before McGOWAN, TAMM and ROBINSON, Circuit Judges.
SPOTTSWOOD W. ROBINSON, III, Circuit Judge:
After a trial by jury lasting six weeks, appellant was convicted on four counts of a five-count indictment charging conspiracy to violate and violations of provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. 1 He was sentenced to pay fines totaling $5, 000. During the course of the trial, certain portions of files of the Securities and Exchange Commission were admitted in evidence pursuant to an agreement of counsel, acquiesced in by the court, that the unadmitted portions would be removed from the files before they were submitted to the jury. Unfortunately, the deletions were not made before the jury began its deliberations, and a file containing an unadmitted item found its way into the jury room. After careful consideration, 2 we cannot conclude on this record that appellant was not prejudiced by the error, and are compelled to reverse his conviction. 3
SUMMARY OF THE EVIDENCE 4
A. The Government's Case
The long chain of events leading to the indictment in this case began in 1958
when appellant acquired all of the outstanding stock of Lancer Industries, Inc. (Lancer), a Florida corporation engaged principally in the manufacture and sale of boats, swimming pools, and other marine products and equipment. Appellant then sold shares in Lancer to Benjamin Tessler, who became president and a director of Lancer, and to Daniel J. Samuels, who served as vice president and director. Appellant became secretary-treasurer and a director of the company, and remained its principal shareholder. In September, 1958, 75, 000 Lancer shares were sold to the public.
The Government contended that appellant dominated Lancer during the period relevant to the case, although he allegedly took a leave of absence because of illness during the first six months of 1961. In July of that year, appellant became chairman of Lancer's board of directors and served in that capacity until the fall of 1962. Tessler remained as president of Lancer until October, 1961, when he was replaced by Peter A. Cattano, Sr.
The Government's evidence tended to show that appellant, aided by Tessler and Cattano, organized or acquired three shell corporations which remained under appellant's control. These were Continental Swimming Pool Corporation (Continental), Flintridge Fiberglass and Electronics Corporation (Flintridge), and Lifetime Pools Equipment Corporation (Lifetime).
Continental was organized by appellant and Tessler in December, 1959, and dissolved less than a year later in October, 1960, after it had acquired the assets of a bankrupt North Carolina swimming pool corporation. These assets were shipped to a Lancer plant in Renovo, Pennsylvania. Flintridge was a California company acquired in the latter part of 1959 by another company controlled by appellant. 5 Its assets, consisting of a boat mold and some office fixtures, were delivered to a Lancer plant in North Hollywood, California, and Flintridge was dissolved in November, 1960.
Lifetime was organized in August, 1958, as a Lancer subsidiary. In December, 1958, all of the outstanding stock of Lifetime was sold to an employee of Lancer, one Cherch. The stock was repurchased one month later and transferred to Cattano in return for a promissory note. Cattano was president and a director of Lifetime from January, 1959, until 1961. The Government contended that neither of these purported transfers of control was a bona fide sale, and that it was appellant who made the business decisions for Lifetime. Lifetime was merged into Lancer in 1961.
The Government sought to prove that appellant caused his bookkeepers to prepare false invoices and record entries showing that Lancer made substantial sales of swimming pools and pool molds to the three controlled corporations. In order to clear the accounts receivable on Lancer's books resulting from these sales, Lancer recorded purchases of molds and other assets from the controlled corporations, including repurchases of pools originally sold to them by Lancer. Testimony of employees of the corporations involved tended to establish that none of them was assembling, selling or installing the substantial number of pools reflected as sales on Lancer's books, and little independent documentation of the recorded sales was produced by the defense. The first phase of the Government's case was thus an effort to demonstrate that appellant had engineered a series of sham intercompany transactions, whose effect was to substantially inflate Lancer's sales figures.
The second phase of the Government's case required proof of the treatment of these allegedly fictitious dealings in filings
by Lancer with the Securities and Exchange Commission. During the years 1960 through 1962, when the sales were being recorded, appellant caused Lancer to acquire four other companies in exchange for Lancer stock. 6 The evidence showed that the parties to these transactions expected Lancer to file registration statements with the Securities and Exchange Commission to enable the former owners of the acquired companies to sell their Lancer shares.
A Lancer registration statement covering the public resale of the stock issued in the four acquisitions was filed with the Commission on April 28, 1961. This filing, signed by Tessler, did not contain the required financial data, and informed the Commission that a summary of earnings would be supplied by amendment. Two amendments and an annual report were subsequently filed. The registration statement, amendments, and the annual report contained the allegedly false statements, based on the previously recorded sales, which gave rise to the indictment.
Count one charged appellant with conspiring with other Lancer officials to violate the securities laws, 7 and on this count the jury returned a verdict of guilty. The substantive violations were charged in counts two through five. Count two charged that the registration statement filed on April 28, 1961, contained a false statement to the effect that Lancer had sold the stock in Lifetime, its wholly-owned subsidiary, to independent persons, and that the willful inclusion of this statement violated Section 24 of the Securities Act of 1933. 8 As we have seen, the Government contended that the sale first to Cherch and then to Cattano was a sham, and that appellant retained control of Lifetime. The jury, however, acquitted appellant on this count.
Counts three and four also charged violations of Section 24 in that an amendment filed September 15, 1961, and a post-effective amendment filed March 21, 1962, 9 each contained false statements regarding Lancer's sales and fixed assets at various times during 1960 and 1961. Count five charged that false statements concerning Lancer's sales and fixed assets as of February 28, 1961, were included in an annual report filed as required by Section 32(a) of the Securities Exchange Act of 1934. 10 The jury convicted
appellant on each of these three counts.
B. The Defense
The defense countered both steps of the Government's case. Appellant first asserted that the transactions between Lancer and the other companies were bona fide, and that his deceased brother, William Dallago, controlled Continental and Flintridge and made the purchases of pools for those companies from Lancer. Cross-examination of Government witnesses who testified to the general inactivity of the controlled companies succeeded at least in establishing the existence of pool molds which could have been sold, and in creating no little confusion as to the actual assets and operations of the companies alleged to be shells.
The remainder of the defense consisted of an effort to show that appellant did not personally undertake to assure that registration statements would be filed in connection with Lancer's four acquisitions in exchange for its stock, and that he took no part in the preparation and filing of the financial statements alleged to be false. Appellant testified that subsequent to the filing of the amendment on September 15, 1961, he had written to the attorney who prepared the filing and protested that it contained numerous errors, and had asked that the matters be discussed before the next amendment was filed. Although the post-effective amendment, filed March 21, 1962, appeared to have been signed by appellant, he denied that he had ever seen the filing. Appellant stated further that Tessler was responsible for providing the financial information and overseeing preparation of the filings.
ERROR IN SENDING EXHIBITS TO THE JURY
A great deal of documentary evidence was introduced at the trial, including portions of the substantial filings with the Securities and Exchange Commission by the companies with which appellant had been connected. When certain of the Commission's files were about to be placed in evidence, counsel for the Government and the defense, out of the jury's presence, informed the court of their stipulation that some of the Commission...
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