Bogy v. United States

• Citation: 96 F.2d 734
• Decision Date: 09 May 1938
• Docket Number: 7649.,No. 7616,7616
• Parties: BOGY v. UNITED STATES. SPAULDING v. SAME.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

96 F.2d 734 (1938)

BOGY v. UNITED STATES.

SPAULDING v. SAME.

Nos. 7616, 7649.

Circuit Court of Appeals, Sixth Circuit.

May 9, 1938.

Charles M. Bryan and Thomas L. Robinson, both of Memphis, Tenn. (Chas. M. Bryan and Blan R. Maxwell, both of Memphis, Tenn., on the brief for Bogy; Thomas L. Robinson and John E. Robinson, both of Memphis, Tenn., on the brief for Spaulding), for appellants.

R. G. Draper, of Memphis, Tenn. (William McClanahan, C. P. J. Mooney, and R. G. Draper, all of Memphis, Tenn., on the brief), for appellee.

Before HICKS and ALLEN, Circuit Judges, and DRUFFEL, District Judge.

ALLEN, Circuit Judge.

The appellants were found guilty under six counts of an indictment, the first five counts of which charged them jointly with one Joseph R. DeLatte with violating the mail fraud statute, title 18, section 338, U. S.C. 18 U.S.C.A. § 338. The sixth count charged them with conspiracy to violate the mail fraud statute and section 77q, title 15, U.S.C. 15 U.S.C.A. § 77q. The District Court sentenced the appellants under each count.

The first count of the indictment, which by reference is incorporated into the other counts, in substance charges appellants, together with Joseph R. DeLatte (who pleaded guilty), with devising a scheme, in violation of the above statutes, to defraud customers of the Colonial Investment Syndicate, Inc., of which Bogy is president and sole owner, of bonds which they had theretofore purchased from Bogy. It also charges appellants with using the mails for the purpose of fraudulently releasing Bogy from liability for bonds purchased by his customers but not yet delivered to them by Bogy. The first two counts of the indictment are based upon letters mailed by Bogy to two of his customers, and the third, fourth and fifth counts are based upon letters mailed by three of Bogy's customers to Bogy, all charged to have been mailed for the purpose of executing the fraudulent scheme. The sixth count describes the alleged conspiracy and lists among other overt acts the mailing and receiving of the five letters embodied in the other counts, and the unlawful use of the mails in the sale of securities.

It is impossible properly to summarize the allegations in this involved and detailed indictment. For the purposes of this opinion it is sufficient to say that the gist of the fraudulent scheme set forth was as follows:

Bogy, a resident of Memphis, Tennessee, had built up a business in selling and exchanging securities. In his manipulations he was often unable to make prompt deliveries, and therefore owed bonds to certain customers. Having secured the necessary information from Bogy, Spaulding would acquire from Bogy's customers the bonds in their possession, would induce them to execute papers releasing Bogy from liability for the securities still owed (some of which papers were mailed), and would appropriate the bonds secured.

The appellants attack the sixth count of the indictment, both by demurrer and by assignment of error, upon the following grounds:

(1) That the facts set forth were insufficient to charge an offense.

(2) That section 77q, title 15, U.S.C., 15 U.S.C.A. § 77q, imposes punishment for fraudulent "sales" by use of the mails or instruments of interstate commerce, and that the indictment does not charge that a sale was actually made by such means.

(3) That section 77q, title 15, U.S.C., 15 U.S.C.A. § 77q, is unconstitutional.

We think the District Court correctly overruled the demurrers. As to the sufficiency of the indictment, we note that no motion was filed to make the indictment more definite and certain. The true test of the sufficiency of the indictment is "whether it contains the elements of the offense intended to be charged, `and sufficiently apprises the defendant of what he must be prepared to meet, and, in case any other proceedings are taken against him for a similar offense, whether the record shows with accuracy to what extent he may plead a former acquittal or conviction.' Cochran and Sayre v. United States, 157 U.S. 286, 290, 15 S.Ct. 628, 39 L.Ed. 704; Rosen v. United States, 161 U.S. 29, 34, 16 S.Ct. 434, 480, 40 L.Ed. 606." Hagner v. United States, 285 U.S. 427, 431, 52 S.Ct. 417, 419, 76 L.Ed. 861. Applying this test, the sixth count sufficiently charges conspiracy under title 18, section 88, U.S.C., 18 U.S. C.A. § 88.

The second contention likewise is untenable. A "sale," under title 15, section 77b (3), 15 U.S.C.A. § 77b (3) includes "every contract of sale or disposition of, attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value * * *." In the transactions described in the indictment, securities were disposed of, or their disposition was contracted for, and hence they are covered by the broad definition of the statute.

The attack upon the constitutionality of section 77q, title 15, U.S.C., 15 U. S.C.A. § 77q, must also fail. The section reads as follows:

"(a) It shall be unlawful for any person in the sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly —

"(1) to employ any device, scheme, or artifice to defraud, or

"(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or

"(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. * * *"

The principal contention is that securities do not fall within the class of articles of interstate commerce which Congress has power to regulate, and that the prohibition of the use of the mails in fraudulent sales of securities is therefore unauthorized. A similar contention was raised as to the validity of the mail fraud statute, title 18, section 338, U.S.C., 18 U.S.C.A. § 338, in Badders v. United States, 240 U.S. 391, 36 S.Ct. 367, 60 L.Ed. 706. The court held that Congress may forbid the use of the mails in furtherance of a scheme that it regards as contrary to public policy, whether it can forbid the scheme or not. Cf. Public Clearing House v. Coyne, 194 U.S. 497, 24 S.Ct. 789, 48 L.Ed. 1092; In re Rapier, 143 U.S. 110, 12 S.Ct. 374, 36 L. Ed. 93; Ex parte Jackson, 96 U.S. 727, 24 L.Ed. 877.

We think these holdings by analogy support the validity of section 77q, title 15, U.S.C., 15 U.S.C.A. § 77q, Congress, under its power to establish post offices and post roads, Article 1, § 8, United States Constitution, has full control of the mails and may forbid their use in the execution of schemes to defraud. Under this section Congress has a similar power over the instrumentalities of interstate commerce. This power is complete in itself, and subject to no limitations except those found in the Constitution. Hipolite Egg Co. v. United States, 220 U.S. 45, 57, 31 S.Ct. 364, 55 L.Ed. 364. Section 77q is no more far-reaching than other statutes lawfully enacted to close the channels of interstate commerce to uses antagonistic to the public health and safety, such as the transportation of impure food (Hipolite Egg Co. v. United States, supra), the white slave traffic (Hoke v. United States, 227 U.S. 308, 33 S.Ct. 281, 57 L.Ed. 523, 43 L.R.A.,N.S., 906, Ann.Cas.1913E, 905), and traffic in stolen automobiles (Brooks v. United States, 267 U.S. 432, 45 S.Ct. 345, 69 L.Ed. 699, 37 A.L.R. 1407). Congressional control of the mails logically includes the power to exclude therefrom not only articles physically dangerous to the public health, safety or welfare, such as narcotics, but also to forbid the use of the mails for deceptive transactions which are detrimental to the financial well-being of the nation. As said in Brooks v. United States, supra (page 346), "Congress can certainly regulate interstate commerce to the extent of forbidding and punishing the use of such commerce as an agency to promote immorality, dishonesty or the spread of any evil or harm to the people of other states from the state of origin." The particular statute here considered was held valid in Securities and Exchange Commission v. Torr, 15 F.Supp. 315, D.C.N.Y.; Jones v. Securities and Exchange Commission, 2 Cir., 79 F.2d 617.¹ Title 15, section 77q, U.S.C., 15 U.S.C.A. § 77q, is a valid exercise of the congressional power over the mails and interstate commerce.

Appellants also contend that the court should have directed a verdict for appellants, that the charge was prejudicially erroneous, and that misconduct of Government counsel prevented a fair trial.

Decision as to the court's denial of a directed verdict requires some statement of the evidence.

Bogy admitted buying the powers of attorney and sending the letters described above, but claimed that he had no connection with Spaulding. Spaulding admitted negotiating the deals, but said that the frauds were the conception of and were executed by Joseph R. DeLatte, co-defendant.

In the conduct of his business Bogy had acquired the confidence of the customers named in the indictment, Enochs, Miss Johnson, and Mrs. Kelly. He traded their securities and for that purpose retained them in his possession from time to time. Bogy had contracted to sell and during the early part of 1935 owed to Enochs, Mrs. Kelly and Miss Johnson some forty-seven bonds of the par value of $1,000 each, which were worth about twenty cents on the dollar, or about $9,000 in the aggregate, at the then market price. The fact that these bonds were selling so far below par had not been revealed to Mrs. Kelly or Miss Johnson by Bogy.²

In December, 1934, Bogy was pressed for funds. The bank account of his company ran as low as $24 in this month, and at no time during this period was adequate to pay for all of the bonds which Bogy owed. He kept no private bank account,...