United States v. Fishbein

• Citation: 446 F.2d 1201
• Decision Date: 23 September 1971
• Docket Number: No. 23732.,23732.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Sam Ford FISHBEIN and Leonard M. Yordon, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

446 F.2d 1201 (1971)

UNITED STATES of America, Plaintiff-Appellee, v. Sam Ford FISHBEIN and Leonard M. Yordon, Defendants-Appellants.

No. 23732.

United States Court of Appeals, Ninth Circuit.

July 28, 1971.

Rehearing Denied September 23, 1971.

COPYRIGHT MATERIAL OMITTED

John W. Rood (argued), of Cavness, DeRose, Senner & Foster, Phoenix, Ariz., Luke McKissack (argued), Hollywood, Cal., Hochman, Salkin & DeRoy, Los Angeles, Cal., for defendants-appellants.

Richard C. Gormley, Asst. U. S. Atty. (argued), Edward E. Davis, U. S. Atty., Phoenix, Ariz., for plaintiff-appellee.

Before ELY and CARTER, Circuit Judges, and SMITH^*, District Judge.

RUSSELL E. SMITH, District Judge.

AS TO FISHBEIN

Sam Ford Fishbein, convicted on Count 1 (Conspiracy), 18 U.S.C. § 371, Counts 2 to 8, and 10 to 15 (Fraud in the Sale of Securities), 15 U.S.C. § 77q(a) and Count 21 (Use of Mails to Defraud), 18 U.S.C. § 1341, of a 22-count indictment, appeals.

In June, 1961, a group consisting of Fishbein and four others acquired interests in six motels, two of which were located in Phoenix, and one each in the cities of Tucson, Houston, Tulsa, and San Diego. The purchase price was $4,000,000.00, of which $35,000.00 was paid down and the balance secured by mortgages on the purchased property. This group then organized the HiwayHouse Hotels, Inc. (hereafter HiwayHouse) and transferred the motels to it in exchange for 150,000 shares of common stock, par value $1.00 per share. The corporation then offered to the public 225,000 shares of common stock at a price of $4.80 per share. HiwayHouse itself employed a group of salesmen and conducted the promotion.

HiwayHouse did not prosper. From the beginning it operated with substantial losses. Within the period between the date of its incorporation and November, 1963, the retained earning deficit was $1,148,156.31. In November, 1962, HiwayHouse lost its Houston property. As of September, 1962, an audit showed that it had sustained losses in the Tucson operation of $110,374.22 in the period between August 1, 1961, and December 31, 1961. At that time it had been recommended to the corporation that it abandon the Tucson HiwayHouse lease, which it was able to do under somewhat peculiar terms of the lease. In March, 1963, it did abandon the Tucson properties. Early in 1964 it lost all of the properties and its stock became worthless.

The evidence warranted a finding by the jury that almost from the beginning and continuously until November, 1963, the officers of HiwayHouse diverted funds to themselves, used corporate funds to supply personal needs, diverted HiwayHouse funds to corporations, the stock in which was owned by HiwayHouse officers, including Fishbein, and also pledged the credit of the corporation in behalf of these same officer-owned corporations.

For use in the sale of stock of HiwayHouse a prospectus was issued on October 3, 1961, and still another on November 28, 1961, and still another on October 11, 1962. All of the prospectuses issued carried an August 1, 1961, balance sheet. All of them in the paragraph entitled "Transactions With Management" contained nothing more than a description of the formal stock arrangement existing between the company and its promoters and revealed nothing of the cash flow between the corporation and its officers, and nothing with respect to the relationship between HiwayHouse and corporations which were owned and controlled by the officers of HiwayHouse. All of them described the initial six properties, although it is fairly inferable from the record that prior to the issuance of the prospectus in October, 1962, the officers knew that the Tucson property would be abandoned, and also knew that the Houston lease was in default. In any event, after March, 1963, the date upon which the Tucson property was finally abandoned, the prospectus was false and its use misleading.

Fishbein became an executive vice president of HiwayHouse and its chief executive officer in November, 1961, and on January 15, 1962, he was made president. The evidence warrants a finding that he knew of some, if not all, of the dealings between the officers and the corporation, that he knew of the deteriorating financial condition of the corporation, and that he knew that the properties at Tucson and Houston had been lost. He knew that the prospectus was being used by the salesmen of HiwayHouse in the sale of its stock.

It is urged that there was insufficient evidence to prove a conspiracy with respect to Fishbein. The problem is not without difficulty, but the necessary agreement can be inferred from the proved facts, and that is sufficient. United States v. Bates, 429 F.2d 557 (9th Cir. 1970); United States v. Jones, 425 F.2d 1048 (9th Cir. 1970). Fishbein and the others did agree to the organization of HiwayHouse and the public offering of its stock. They agreed upon the plan of selling the stock by the HiwayHouse sales force. They participated in and knew of the diversion of HiwayHouse funds. It may be inferred that the various defendants did not want their dealings with the corporate funds and credit made public and tacitly agreed upon the content and use of the prospectuses which failed to adequately reflect those dealings. It may also be inferred that they agreed to use the August, 1961, balance sheet in the prospectuses which bypassed any reflection of the financial transactions between the officers and the corporation and concealed the corporate losses which had occurred in the interim. From all of this we believe that a jury might properly conclude that there was a conspiracy to commit a fraud in the sale of the corporate securities and that this conspiracy included the use of the mails.

It is next urged that, there having been a conviction on the conspiracy charge, the Government should be precluded from prosecuting the substantive offenses. This rule has been advocated¹ but it is not the law except under circumstances which are not pertinent in view of our disposition of the case as to Fishbein. Pinkerton v. United States, 328 U.S. 640, 66 S.Ct. 1180, 90 L.Ed. 1489 (1946); Callanan v. United States, 364 U.S. 587, 81 S.Ct. 321, 5 L.Ed.2d 312 (1961).

Fishbein was convicted on Count 3 of the indictment charging fraud in the sale of securities to one Peterlin, in violation of 15 U.S.C. § 77q. The second prospectus was delivered by mail to Peterlin. At the time of his purchases in June and July, 1962, Prospectus No. 2 was at best misleading. Although it indicated that the officers were serving without compensation, substantial sums had been paid to them without any corporate authority. Substantial obligations had been incurred which were not shown. False and misleading statements were made to Peterlin by both Wagner (the Sales Manager) and Fishbein. As a result of all of this Peterlin purchased 1300 shares of stock for $6,140.00. In our opinion the evidence viewed in the light most favorable to the Government was sufficient to warrant the conviction on Count 3.

We direct that the judgments of conviction be vacated as to Counts 2, 4, 5, 6, 7, 8, 11, 12, 13, 14, 15, and 21, said judgments to be reinstated if Fishbein shall violate the terms of his probation as to Count 3. We do this without passing upon the multiple problems of fact and law which we would be required to examine were we to dispose of these counts on the merits. Our reasons are these:

The judgment in this case fined the defendant $5,000.00 on Count 1 and then provided "that the imposition of sentence as to imprisonment only is suspended and defendant placed on probation for a period of two (2) years" on the remaining counts. The effect of what we do is to maintain the fine on Count 1 and the judgment of conviction as to Count 3. We do not vacate the jury verdict but in effect confirm the Court's suspension of the imposition of sentence on the counts as to which judgment is vacated. See United States v. Hooper, 139 U.S.App.D.C. 171, 432 F.2d 604 (1970). If Fishbein should violate the terms of his probation, the District Court may reinstate the judgment as to the vacated counts and then in its discretion make the sentences on Count 3 and the then restored counts run concurrently or consecutively. In either case the judgments will be subject to appellate review. Were the sentences imposed to run consecutively on some counts, this Court could then examine the convictions as to those counts only and refuse to review where concurrent sentences had been imposed (United States v. Newton, 9 Cir., 442 F.2d 622, decided May 11, 1971; United States v. Washabaugh, 9 Cir., 442 F.2d 1127, decided April 28, 1971), or it could review the concurrent sentences if it thought that they visited upon the defendant adverse collateral consequences. (Benton v. Maryland, 395 U.S. 784, 89 S.Ct. 2056, 23 L.Ed.2d 707 (1969); United States v. Washabaugh, supra).

This appeal as it relates to the counts as to which judgments are vacated bristles with difficult legal and factual problems. The factual problems arise on an unindexed record² consisting of 2,154 pages and about 240 exhibits. To get to the merits we would need to examine the record to determine the sufficiency of the evidence as to each count. We would be largely unaided by the briefs³ which attempt to deal with the factual problems in general terms and without transcript references to the items of evidence which prove the separate elements of each count. By this order appellant loses nothing and the Government loses only the additional record of conviction of a man already convicted of offenses arising out of the same general transaction. Under these circumstances we believe that the interests of justice are better served if this Court turns its attention to the many real and pressing problems before it which cry for an early solution, rather than to engage in the vast labor necessary to solve on this appeal what now appear to be almost academic problems. We take this...