Atherton v. United States, 9828.

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation128 F.2d 463
Docket NumberNo. 9828.,9828.
Decision Date19 May 1942

Bates Booth and Alfred P. Peracca, both of Los Angeles, Cal., for appellants.

Wm. Fleet Palmer, U. S. Atty., and Russell K. Lambeau and Edward H. Law, Asst. U. S. Attys., of Los Angeles, Cal. (Arthur E. Pennekamp, Atty., Securities and Exchange Commission, of San Francisco, Cal., of counsel), for appellee.

Before DENMAN, STEPHENS, and HEALY, Circuit Judges.

HEALY, Circuit Judge.

Appellants, with four others, were indicted on a charge of conspiracy to violate, and of violating, the provisions of § 17 (a) (1) of the Securities Act of 1933, 15 U.S.C.A. § 77q (a) (1), and the mail fraud statute, 18 U.S.C.A. § 338. Each of the appellants was convicted on various of the 17 counts. Of the four others indicted, one, McBride, entered a plea of nolo contendere; and two, Baskette and Finnerty, were convicted but have not appealed. Black, the remaining defendant, was acquitted. The basis of the substantive counts is that the defendants conceived and carried into effect a scheme to defraud through the sale of partial assignments of oil and gas leases and undivided interests in a drill site.

The venture was promoted under the name of Caloma Oil Company, a partnership formed for that purpose by Baskette, McBride, and one Scott. Scott was shortly eliminated from the picture. In 1936 the Caloma Oil Company, at trifling expense, obtained or revived oil or gas leases on some 2,300 acres of land in Oklahoma in the neighborhood of the producing Fitts Field. Of the area under lease a tract of 160 acres was selected as a drill site upon which it was proposed that a well be drilled for the purpose of proving the area. The plan as conceived and carried out was for the sale of fractional assignments of these leases in minimum lots of 2½ acres each, it being represented that the drilling of the well on the drill site would be financed by these sales. As a first step, a geological report of the area was procured from the defendant Black. Arrangements were then made with a licensed real estate broker to open an office in the Caloma Oil Company's headquarters at Los Angeles and for the placing in that office of licensed salesmen who were to operate on the basis of a 40% commission; and a permit was secured from the Real Estate Commissioner of the State of California for the sale in that state of the fractional interests.

The defendant Finnerty, who, incidentally, was convicted on the conspiracy count only, was a deputy in the office of the Real Estate Commissioner. He actively interested himself in having a favorable report made; also, in having numerous extensions of the permit approved later on. There is evidence that Finnerty's activities were compensated by the Caloma Oil Company. The three appellants served at one period or another as salesmen of the Caloma leases under the brokerage arrangement, they being locally licensed real estate salesmen. Their efforts were instrumental in the making of numerous sales and in the realization therefrom of a large amount of money, little of which was used in the development of the drill site. Work on the supposed test well was sporadic to say the least, drilling being carried on 15 days at one time, 15 at another, and about 60 days at another time during the 3-year period of the selling campaign.

1. Some of the representations charged and proved in connection with the sales were that the leases covered property bearing every indication of oil being found in large quantities; that the "Geological Department" of the Caloma Oil Company, under the supervision of one of the foremost geologists of the Mid-Continent area, had selected the acreage after 2 years of research and prior to the date of the discovery of the Fitts Field; that the formations being encountered in the Caloma Oil Company's well correlated so perfectly with the logs of wells in the Fitts Field that the minds of the promoters were satisfied as to the correctness of their geological researches; that "our acreage has been withdrawn from the general market, as we feel confident that the very near future will see Caloma's holdings brought in as a new producing area"; that appellant Standish was field superintendent for the company, had spent over 25 years in his present work and was thoroughly versed in every department of the oil business; and that the salesmen of the company were so convinced of the desirability of the leases that they had invested their own funds therein. The falsity of these representations was abundantly established. The enterprise was shown to be from first to last a heartless swindle designed to attract, as it did, the small savings of women, old people, and others of the type traditionally preyed upon by the unconscionable sharper.

Appellants concede that the scheme was rankly fraudulent both in inception and in execution. Their claim is that they were ignorant of the fraud, and that as mere licensed salesmen they were entitled to rely on the investigation and report of the Real Estate Commissioner made prior to the issuance of the permit. But unfortunately for appellants the record belies their argument. There is much evidence tending to prove knowledge on their part of the...

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  • Securities & Exch. Com. v. Koscot Inter., Inc.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • 15 Julio 1974 investment contract as "the investment of money with the expectation of profit through the efforts of others." In Atherton v. United States, 128 F.2d 463 (9th Cir. 1942), while noting that purchasers looked entirely to the efforts of promoters to make their investment a propitious one, t......
  • Securities and Exchange Commission v. Howey Co
    • United States
    • United States Supreme Court
    • 27 Mayo 1946
    ...Corp., 111 N.J.Eq. 61, 161 A. 193. See also Moore v. Stella, 52 Cal.App.2d 766, 127 P.2d 300. 5 Atherton v. United States, 9 Cir.,. 128 F.2d 463; Penfield Co. of California v. S.E. C., 9 Cir., 143 F.2d 746; S.E.C. v. Universal Service Association, 7 Cir., 106 F.2d 232; S.E.C. v. Crude Oil C......
  • Los Angeles Tr. D. & M. Exch. v. Securities & Exch. Com'n
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • 10 Enero 1961
    ...referred to the following cases: cf. also: Penfield Co. v. S. E. C., 9 Cir., 1944, 143 F.2d 746, 154 A.L.R. 1027; Atherton v. United States, 9 Cir., 1942, 128 F.2d 463; S. E. C. v. Univ. Service Ass'n, 7 Cir., 1939, 106 F.2d 232; S. E. C. v. Crude Oil Corp., 7 Cir., 1937, 93 F.2d 844 (barre......
  • Glen-Arden Commodities, Inc. v. Costantino, 817
    • United States
    • United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
    • 14 Marzo 1974
    ...`the purchasers look entirely to the efforts of the promoters to make their investment a profitable one,'" quoting Atherton v. United States, 128 F.2d 463, 465 (9th Cir. 1942). This analysis was approved in SEC v. W. J. Howey Co., 328 U.S. 293, 298-299, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). ......
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