U.S. v. DeVeau

• Decision Date: 24 May 1984
• Docket Number: No. 83-1655,83-1655
• Citation: 734 F.2d 1023
• Parties: Fed. Sec. L. Rep. P 91,536 UNITED STATES of America, Plaintiff-Appellee, v. Frederix P. DEVEAU and Irving M. Drobny, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1023

734 F.2d 1023

Fed. Sec. L. Rep. P 91,536

UNITED STATES of America, Plaintiff-Appellee, v. Frederix P. DEVEAU and Irving M. Drobny, Defendants-Appellants.

No. 83-1655.

United States Court of Appeals, Fifth Circuit.

May 24, 1984.

Joseph A. Turner (court-appointed), Austin, Tex., for DeVeau.

Roy Q. Minton, Austin, Tex., for Drobny.

Edward C. Prado, U.S. Atty., San Antonio, Tex., Breckinridge L. Willcox, Washington, D.C., for plaintiff-appellee.

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

Before RANDALL, TATE and WILLIAMS, Circuit Judges.

PER CURIAM:

Defendants-appellants Frederix DeVeau and Irving Drobny appeal their convictions for securities fraud, mail fraud, and submitting false statements to the Securities and Exchange Commission ("SEC"). Because none of the issues they raise requires reversal, we affirm.

The Scheme

The facts essential to deciding this appeal are as follows: In 1978, DeVeau, known then as Fred Pro, entered the Department of Justice's Witness Protection Program, after serving thirty-eight months in prison for racketeering activities. He was given a new identity and was relocated in San Antonio, Texas.

In February, 1981, DeVeau acquired control of the Electric Car Company, located in Huntington Beach, California, by promising to pay the sellers with whatever profits he could generate from the company. He relocated the business in San Antonio, and operated it under the name of the Marquess Car Company. The operation was never viable and, by late 1981, it had virtually ceased operations.

In early 1982, DeVeau was introduced to the management of Jet Industries, Inc. and he began efforts to purchase the company. Jet was a publicly-held corporation located in Austin, Texas, that was engaged in the business of manufacturing electric-powered vehicles. Jet was in desperate financial trouble, despite the fact that it was cash rich. Jet had been loaned more than $2 million by the United States Department of Energy, but was losing money precipitously and was actively seeking new management. After he acquired Jet, DeVeau planned to merge it with the defunct Electric Car Company, thereby giving the latter new funds and new life, and enabling it to pay off its creditors.

During negotiations with the directors and officers of Jet, DeVeau not only concealed his past criminal record, but also misrepresented his background and financial resources. An agreement was reached between DeVeau and Jet whereby DeVeau was to acquire 20% of Jet's stock for $1,200,000, with $300,000 cash as a down payment. The agreement also provided that DeVeau would become Jet's chief executive officer after his purchase of the stock.

DeVeau had no funds and he made arrangements to borrow the $300,000 down payment from the Plaza Bank of San Antonio with the help of the bank's president, Roy Diefendorf. At the February 12, 1982 closing, Jet's representatives discovered that DeVeau had pledged Jet assets to collateralize his bank loan. DeVeau was told that such collateralization was both illegal and unacceptable to Jet, and the closing was aborted.

Negotiations continued between DeVeau and Jet's representatives, which led to a new agreement. No change was made in the purchase price, but the down payment was doubled to $600,000, and the closing was scheduled for April 8, 1982. Diefendorf arranged to secure $300,000 of the down payment through loans from some of the bank's depositors, but DeVeau was still short $300,000 of the $600,000 needed to close the deal.

Enter Drobny, a Chicago lawyer who was the beneficial owner of a large block of Electric Car Company stock. In 1981, Drobny had agreed to obtain a loan from a Chicago bank for the benefit of a friend, David Jordan. Jordan supplied Drobny with Electric Car stock to be used as collateral for the $350,000 loan. Jordan failed to make the loan payments, causing Drobny to default on the loan. By late 1981, the Electric Car stock pledged as collateral was essentially worthless. Drobny was anxious for DeVeau to acquire control of Jet and merge it with the Electric Car Company so that the Electric Car stock would regain its value, and Drobny could pay off the defaulted loan.

Drobny agreed to locate for DeVeau the remaining $300,000 needed for the down payment. Drobny obtained $300,000 from his friend and landlord, Joseph Rosin, by promising Rosin that DeVeau would pay Rosin a $30,000 "fee" for the short term use of his funds. Rosin made Drobny agree not to hand over Rosin's $300,000 check until he had a certified check for $330,000 in hand as repayment. DeVeau agreed to pay Drobny a $200,000 "fee" for raising the money from Rosin.

On April 7, 1982, Drobny traveled to Austin for the Jet closing, carrying with him Rosin's cashier's check for $300,000. On April 8, Drobny gave DeVeau Rosin's check, which was used to conclude successfully DeVeau's purchase of the Jet stock. Later that day, DeVeau tendered to Drobny a series of checks drawn on a Marquess Electric Car Company account as repayment for Rosin and as partial payment of Drobny's $200,000 "fee." DeVeau told Drobny that the checks were not good, but that he would cover them with money from a family "trust fund" that was expected to arrive in San Antonio the following day. Drobny accepted the checks in partial payment of his fee, but refused the check for Rosin, informing DeVeau that Rosin would accept repayment only by cashier's check. DeVeau agreed to give Drobny a $330,000 cashier's check from the "trust fund" the following day.

The next day, DeVeau told Drobny that the proceeds from the "trust fund" had not arrived, and Drobny returned home to Chicago. On April 11, Drobny returned to Austin for a Jet Board of Directors meeting that was scheduled for the following day. Both DeVeau and Drobny had been elected to Jet's board after DeVeau had gained control of the company. At the meeting, Drobny moved to elect DeVeau as Chairman of the Board, and DeVeau was so elected. DeVeau was still unable to produce any "trust fund" money to repay Rosin, and both DeVeau and Drobny left Austin for San Antonio.

On the morning of April 13, DeVeau went to the Plaza Bank and opened an account with a deposit of $400,000 of Jet's monies. DeVeau then gave Diefendorf $300,000 to repay the loans that Diefendorf had arranged and repaid the bank for a long-overdue $70,000 loan.

DeVeau then left the bank, and returned later that afternoon with Drobny. When Drobny arrived at the bank, he learned that DeVeau's "trust fund" money had not arrived, despite DeVeau's representation to the contrary. Drobny also discovered that DeVeau had repaid the $300,000 Diefendorf had arranged. Drobny had not yet recovered Rosin's money, and he insisted upon buying a cashier's check from the Plaza Bank with his personal check so that he could repay Rosin. Although Diefendorf refused initially, Drobny assured Diefendorf that he was of substantial wealth, that he was a director of the Chicago bank where he maintained his account, and that his check was good--none of which was true. Diefendorf relented, and issued a $330,000 cashier's check in exchange for Drobny's check for the same amount.

Drobny returned to Chicago and gave Rosin the cashier's check. In the days that followed, Diefendorf called Drobny several times in an effort to reconfirm that Drobny's check would be good; Drobny assured him that it was, but made no efforts to cover it. Sensing that Drobny's check might not clear, Diefendorf went to DeVeau and asked him to cover the check. DeVeau gave Diefendorf a $350,000 check from Jet's monies to cover Drobny's check. When Drobny's check was returned to the Plaza Bank on April 23 for insufficient funds, Diefendorf used DeVeau's check to cover Drobny's. Drobny never inquired who covered his check, or in what fashion it was made good. ¹

During the weeks that followed, DeVeau misappropriated most of Jet's liquid assets. DeVeau paid several personal debts, repaid Electric Car's creditors, and paid Drobny $165,000 of his $200,000 fee (the checks given to Drobny by DeVeau on April 8 had bounced). By the end of May, 1982, DeVeau had managed to dissipate more than $1 million of Jet's cash. None of these expenditures were known to, or approved by, Jet's Board of Directors. No merger of Jet and Electric Car was ever considered or approved by Jet's board.

After he gained control of Jet, DeVeau signed various Form 8K Current Form Reports filed with the SEC that falsified his background and falsely stated that a large portion of the cash used to acquire Jet came from his own funds.

Jet officials began to suspect that DeVeau was using Jet assets irregularly. The scheme was soon discovered, which led eventually to this criminal prosecution.

The Charges

A thirteen count indictment was returned against DeVeau and Drobny. Count One charged both appellants with conspiracy to commit mail fraud, securities fraud and fraud against the United States, in violation of 18 U.S.C. Sec. 371 (1982). Counts Two through Six charged both appellants with securities fraud, in violation of 15 U.S.C. Sec. 78j(b) (1982). Counts Seven through Ten charged DeVeau with mail fraud, in violation of 18 U.S.C. Sec. 1341 (1982), and Counts Eleven through Thirteen charged DeVeau with submitting false statements to the SEC, in violation of 18 U.S.C. Sec. 1001 (1982).

Before trial, the government moved for and received a dismissal of Counts Nine and Ten. Trial lasted four weeks and the jury convicted both DeVeau and Drobny on Count Two, and DeVeau on Counts Three through Seven, and Thirteen. They were acquitted of the other charges.

DeVeau was sentenced to twenty years imprisonment, and Drobny to four. This appeal followed.

DeVeau

DeVeau's single contention is that the district court abused its discretion by refusing to grant his motion for severance when it became apparent that his defense and that of his co-defendant Drobny were "irreconcilable and...