73 F.2d 861 (10th Cir. 1934), 1102, Little v. United States

Docket Nº:1102.
Citation:73 F.2d 861
Case Date:November 20, 1934
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 861

73 F.2d 861 (10th Cir. 1934)




No. 1102.

United States Court of Appeals, Tenth Circuit.

November 20, 1934

Page 862

Charles T. Mahoney, of Denver, Colo., for appellant.

Thomas J. Morrissey, U.S. Atty., and Ivor O. Wingren, Asst. U.S. Atty., both of Denver, Colo., for the United States.

Before PHILLIPS and McDERMOTT, Circuit Judges, and POLLOCK, District judge.

McDERMOTT, Circuit Judge.

Appellant was convicted of using the mails in execution of a scheme for obtaining money by false pretenses and promises. The scheme alleged was substantially this: That defendant

Page 863

organized an unincorporated association called 'Arriba Gold Fields, Ltd.'; its authorized capital was twenty-five million shares of a par value of one dollar each. The defendant was the principal trustee. Defendant had an option to purchase 158 gold placer mining claims in New Mexico, which he proposed to transfer to the trust in consideration of $5,000 cash to the then owner-- the purchase price under the option-- and of 6,250,000 shares to defendant, for his bargain, when a mill of not less than 500 tons daily capacity was constructed. That defendant then, unknown to the shareholders, became a silent member of 'David Garret & Company, Investment Bankers,' who part was to dispose of the shares to the public for a commission, which the proof disclosed to be 60 per cent. of the gross proceeds. That defendant solicits the public to purchase such shares, and in so doing made false representations and promises, among them being that the placer claims contained an area of 40 square miles upon which there was in sight gold of the estimated value of $325,000,000,000; that such ore could be mined and milled for two dollars a ton; that there was plenty of wood and water available to operate the mills; that a 500-ton mill would be in operation by July 1, 1929; that the first unit was then being constructed; that the mine had passed from the speculative to the development stage, and would return good profits; that the trust was managed by conservative men of large caliber; that the Arriba was the world's greatest mine.

A further part of the scheme, as alleged, was to allay the uneasiness of shareholders in Arriba, when the original promises began to pall, by offering them stock in the Paradise Gold Mines Company which owned a bonanza discovered by three old French prospectors, who died without revealing its whereabouts. All of these representations were alleged to be false.

The letters set out in the indictment were mailed to the shareholders of the original Arriba trust, and explain that the delay in dividends had been caused by some unexpected litigation; an opportunity was offered shareholders to protect their interests in the Arriba mine and in water rights necessary to operate the mills, and at the same time give them 'some real quick action,' by buying stock in the Paradise Company-- par value, one cent a share-- to which would be conveyed the famous lost mine, over which the discoverers had dueled to their death, and which had been miraculously rediscovered in time to enable the Arriba shareholders to protect their interests in the claims with gold in sight of a conservative value of $325,000,000,000.

The proof disclosed a lurid appeal to the cupidity of the credulous. It was represented that the placer claims covered 40 square miles of conglomerate, which assayed from $1.00 to $45.00 a ton; that in one 160-acre tract there were more than 110,000,000 tons of ore exposed; that the cost of milling and mining would not exceed $2.00 a ton; that $3.00 a ton was a conservative estimate of the net profit to be derived from operations; from there simple arithmetic carried to the inescapable conclusion that the properties were conservatively worth $325,000,000,000. Other familiar indicia of this type of promotion were proven: Prospects were stampeded by the representation that a dead line had been established a few days hence, after which shares could only be purchased at a greatly enhanced price-- a roving dead line which was advanced from time to time on account of mistakes of printers and by dint of overpowering arguments addressed to the trustees by the fiscal agents. The Homestake, the Cheno, and the Utah Copper mines, the fortunes amassed by Henry Ford and others, were referred to as the only standards, poor as they were, by which the pot of gold awaiting investors in Arriba shares might be measured. When Arriba did not promptly produce the promised dividends, shareholders were offered an opportunity to invest in the Endura Oil Company of Texas, and still later in the fabulous profits from the lost mine of the Paradise Company.

The defendant freely admitted the representations and promises, but stoutly maintained that he believed them to be true, and adduced reports of six men who signed as engineers, and ten who signed as assayers, attesting the truth of the representations. His testimony was that he formerly held a position of importance with the Southern Railway; he came west to manage some mining interests for a group of his fellow railroad employees. When that venture failed, he was stranded in Colorado. When the Arriba properties came to his attention, it sounded 'ridiculously absurd' to him, but Garret, a stock promoter who overheard the conversation, induced him to examine it, and the multitude of engineering reports convinced him; that his only profit from the transaction was a trifling salary, and his commissions on stock sales which had been lost, along with most of the moneys of the trust, in the oil proposition in Texas.

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We first notice an untoward incident which occurred after the jury had commenced its deliberations, which may have grown out of an informal discussion in chambers, of which but a fragment appears in the bill of exceptions. It appears that the jury addressed a note to the judge, apparently asking for the indictment, certain exhibits, and a copy of the court's instructions. In the colloquy in chambers, defendant's counsel objected to the exhibits going to the jury and to any further instruction. The trial judge properly refused to act in chambers in the absence of the defendant; the jury was called in and the following proceedings had in court:

'The Court: Gentlemen of the jury, the court has your note asking for a copy of the indictment, which has already been furnished you, and your request for the letters pertaining to the different counts of the indictment. Is that correct?

'Foreman of the Jury: Yes, sir.

'The Court: And for the court's instructions. The court will direct the letters, which include enclosures and...

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