U.S. v. Ashdown

• Decision Date: 17 March 1975
• Docket Number: No. 73--3020,73--3020
• Citation: 509 F.2d 793
• Parties: Fed. Sec. L. Rep. P 95,032 UNITED STATES of America, Plaintiff-Appellee, v. Edward Henry ASHDOWN and Charles E. Graham, Jr., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 793

509 F.2d 793

Fed. Sec. L. Rep. P 95,032

UNITED STATES of America, Plaintiff-Appellee, v. Edward Henry ASHDOWN and Charles E. Graham, Jr.,

Defendants-Appellants.

No. 73--3020.

United States Court of Appeals, Fifth Circuit.

March 17, 1975.

Rehearing and Rehearing En Banc

Denied April 17, 1975.

George Milman, for Graham.

Donald M. Re, Beverly Hills, Cal., for Ashdown.

William S. Sessions, U.S. Atty., San Antonio, Tex., Ralph E. Harris, Asst. U.S. Atty., El Paso, Tex., Robert G. Clark, Sp. Atty., Dept. of Justice, Washington, D.C., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Texas.

Before BROWN, Chief Judge, and COLEMAN and DYER, Circuit Judges.

DYER, Circuit Judge:

Graham and Ashdown appeal their convictions for securities fraud under 15 U.S.C.A. § 77q(a) and mail fraud under 18 U.S.C.A. § 1341. We affirm.

Both were convicted on ten counts of an eleven-count indictment. ¹ All counts involve and incorporate by reference the basic scheme, outlined in Count 1. Graham and Ashdown were charged with employing a scheme to defraud in the offer and sale of common stock in Mountain State Development Co. (Mountain). Counts 1--8 (excluding count 5) each charge specific sales and mailings in violation of 15 U.S.C.A. § 77q(a), fraud in the offer or sale of securities by use of the mails. Counts 9, 10, and 11 incorporate the same scheme, but charge specific mailings in violation of the mail fraud statute, 18 U.S.C.A. § 1341. Thus, proof of a mailing in furtherance of the scheme is an element of each count.

Graham was the architect of the multi-faceted scheme. In July, 1967, he bought a controlling interest in Mountain, the stock of which had an 'assessability' feature. The next day, at Graham's instance, Mountain entered into a contract with Graham Oil Company, of which Graham was the general managing partner, to purchase certain oil properties. An assessment of ten cents per share was levied in January, 1968, ostensibly to finance the purchase of the Graham Oil Co. properties. However, some of these properties were subject to prior assignments and liens, a fact which was never disclosed to the shareholders. Mountain received $290,000 from this assessment.

In the same summer, 1967, Mountain acquired two other properties: one, an oil property in Kern County, California, known as the Jones Lease, and the other a small battery company, Laser Power Industries (Laser). Mountain shareholders were informed of these acquisitions by letter.

In the following May, 1968, Mountain sold the assets of Laser to the city of Deming, New Mexico, under an 'Industrial Revenue Project.' The city used such projects to encourage industrial growth by buying the assets of a company and then leasing them back to an operating company which was to pay substantial rentals to the city. The city in turn would retire the bonds and interest out of that revenue.

The deal between Mountain and the city of Deming was closed on May 14, 1968. Under their arrangement, Mountain sold the assets of Laser to Deming in return for industrial revenue bonds. The Laser assets including equipment, inventory, goodwill, and patents, were then leased to a newly-formed Mountain subsidiary, Laser Power Industries of New Mexico (Laser New Mexico), which was to build a battery plant in Deming and be the operating company. Mountain also assigned the Jones Lease to Laser New Mexico to 'reasonably insure' the success of the project.

The important feature of these industrial bonds is that the city incurs no liability whatsoever. If the operating company does not build a plant and operate it in Deming, the revenue bonds have absolutely no value. Yet they were listed in the 1967 Annual Report as 'marketable securities.' The shareholders were never informed of the city's very limited obligation.

Mountain was headquartered in El Paso, Texas, Graham's home town. It also maintained a Los Angeles office, with which Edward Ashdown became associated in the fall of 1967, and of which he became 'office manager' sometime after the first of the year, 1968. It was at this point that Ashdown became an active participant in the scheme.

The day after the deal between Mountain and Deming was closed, May 15, 1968, Graham and Ashdown transferred controlling interest in Laser New Mexico to Manhattan West Corporation, a small corporate venture. However, a shareholder letter and the annual report, both issued subsequent to the deal, listed both the Jones Lease and Laser as assets of Mountain. The Manhattan West deal was never disclosed.

In July, 1968, Mountain bought certain mining claims in Honduras. Graham and Ashdown went to New York where they engaged a public relations specialist to prepare a press release concerning the Honduran property. The release, prepared and made public August 8, stated that Mountain held claims in Honduras and that 'independent engineering surveys and test cores drilled in one tenmile span of river of the working area are assayed to contain recoverable precious metal of gold and silver valued in excess of $25 million.' The reports on which this estimate was apparently based, later subpoenaed by the SEC, pertained to an entirely different river, and at any rate, did not justify the named figure.

The primary misrepresentations concerning the Deming bonds, the Laser assets, and the Honduran claims, were made in the 1967 annual report, which was distributed in mid-July, 1968, and the August, 1968, press release. Graham was primarily responsible for the preparation of the report, but Ashdown took an active part in its distribution. Both participated in the preparation of the press release. Both Graham and Ashdown traded heavily in Mountain stock, especially after the issuance of the annual report in mid-July and the August 8 press release. Much of Graham's selling was done through nominee accounts by a broker, Poulsen, in Salt Lake City. Both defendants touted the company and the stock to numerous witnesses.

Each defendant claims that, with regard to him, the evidence was insufficient to sustain his conviction. We find on the contrary that there was ample evidence to support the jury's finding that there was a scheme to defraud, that both defendants participated in the scheme, and that the mails were used in furtherance of the scheme. Indeed, the evidence was overwhelming.

Apart from the question of sufficiency of the evidence as to each, the defendants raise identical claims. Many of their assertions of error are without merit. Those which we deem worthy of discussion will be treated as to both Graham and Ashdown.

I. VENUE

Although at trial, Ashdown moved for severance and a transfer to Los Angeles on the grounds of inconvenience and 'in the interests of justice,' defendants are here asserting that El Paso was a constitutionally improper venue. They claim that the only connection shown with Texas was the mailing of the annual report, and that the proof was insufficient to indicate that the mailing had anything to do with the scheme. However, the annual report and the misrepresentations it contained were a central part of the scheme. Furthermore, there were a great many other evidentiary connections with El Paso. It was Graham's home. Poulsen, the Salt Lake stock broker, mailed numerous notes regarding the nominee trading he was conducting to Graham in El Paso. He mailed checks to Graham which were deposited in El Paso banks. Graham maintained the headquarters office of Mountain in El Paso. Books were kept there; employees were paid there; the annual report was edited, printed, and mailed from there. In addition, some of the defrauded purchasers resided there. The Constitution requires that the trial shall be held in the state and district wherein the crime was committed. If there was any one scene of this crime, it was Texas.

II. STATUTE OF LIMITATIONS

The scheme alleged in the indictment covered roughly the period from January 1, 1967, through December 31, 1968. The indictment was returned March 30, 1973. The parties agree that the five-year statute of limitations period of 18 U.S.C.A. § 3282 applies. Count 1 of the indictment, which outlines the scheme, includes several incidents which occurred prior to the limitations period. Graham and Ashdown assert that the jury might have based its guilty verdict on one or more of those acts occurring prior to March 30, 1968, evidence of which they contend was inadmissible. ² In this contention, they misperceive the law.

The statute of limitations is a defense to prosecution, not a rule of evidence. Therefore, once prosecution is timely instituted, the statute of limitations has no bearing on the admissibility of evidence. It would be a bizarre result indeed if a crime properly prosecuted within the limitations period could not be proven because an essential element, such as intent, could only be established by proof of incidents occurring outside the period.

Here, the evidence which the defendants question helps establish the scheme and the guilty intent. But the crimes alleged in every count are mailings in furtherance of the scheme. All of these mailings occurred within the statutory period; hence, there is no limitations problem. One on-going conspiracy is alleged. Although it began outside the limitations period it ended well within it. It is proper for the jury to infer one conspiracy starting before and ending after the statute of limitations period. United States v. Seuss, 1 Cir. 1973, 474 F.2d 385, cert. denied, 412 U.S. 928, 93 S.Ct. 2751, 37 L.Ed.2d 155. Under similar circumstances, the Tenth Circuit found no statutory bar. In that case, a six-count mail fraud, the defendant made fraudulent representations in advertising letters and circulars. As in this case, the court admitted proof of transactions and events occurring more than five years prior to the indictment. Furthermore, in this case, as in United States v. Blosser, 10 Cir. 1971, 440...