Beck v. United States

• Decision Date: 21 June 1962
• Docket Number: 6853.,No. 6852,6852
• Citation: 305 F.2d 595
• Parties: George BECK, Appellant, v. The UNITED STATES of America, Appellee. David R. TUTHILL, Appellant, v. The UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

305 F.2d 595 (1962)

George BECK, Appellant, v. The UNITED STATES of America, Appellee.

David R. TUTHILL, Appellant, v. The UNITED STATES of America, Appellee.

Nos. 6852, 6853.

United States Court of Appeals Tenth Circuit.

May 29, 1962.

Rehearings Denied June 21, 1962.

Russell P. Kramer, Denver, Colo., for appellant, George Beck, Hugh A. Burns, Denver, Colo., for appellant, David R. Tuthill.

Yale Huffman, Asst. U. S. Atty. (Lawrence M. Henry, U. S. Atty., on the brief), for appellee.

Before PICKETT, LEWIS and HILL, Circuit Judges.

HILL, Circuit Judge.

The two appellants, George Beck and David R. Tuthill, were indicted along with other defendants in the District of Colorado on Thirteen Counts. The first Twelve Counts charged use of the mails to defraud under 18 U.S.C.A. § 1341 and the last Count of the indictment charged a conspiracy under 18 U.S.C.A. § 371 to violate § 1341. Trial was had to a jury as to Beck, Tuthill and their co-defendant, Conklin. Beck was convicted on Counts One, Two, Three and Four and acquitted on the remaining Counts; Tuthill was convicted on Counts One through Twelve and acquitted on Count Thirteen. We are not concerned here with Conklin.

The prosecution stems from the conduct of a business venture initiated by the appellants.

In 1952, Beck became the exclusive importer to the United States and Canada for an Austrian-made hand knitting machine. For the next five years, the business did not prosper to any great extent. Early in 1957, he learned the details of a business venture in Detroit, Michigan, which combined the selling of hand knitting machines with an agreement for the purchase of garments from those buying the machines. With knowledge of the working of this business, he solicited and obtained the services of Tuthill and together they organized California Sportswear Corporation of Colorado, incorporating the same on May 24, 1957, for the purpose of carrying on a business similar to the Detroit venture. Beck became President and Tuthill Secretary-Treasurer of the Corporation. Beck and Tuthill, with salesmen employed by them, contacted women in the vicinity of Denver to sell the women the knitting machines imported by Beck at prices ranging from $300 to $350 each, with profits to the corporation ranging from $200 to $270 on each machine. The names of the sales prospects were obtained largely from responses to advertisements placed in various area newspapers. Copies of the written sales presentation and work agreement with the purchasers of the machines and also knitting patterns were procured from the Detroit concern and used in the operation of this business.

The agreement entered into with the purchasers of the machines provided for the sale of yarn by the company to the purchasers at cost and the company agreed to purchase all garments knitted at a price twice the cost of the yarn used.

At no time during the operation of this venture did the corporation or appellants have any substantial demand or outlet for the garments bought from the purchasers of the knitting machines. The evidence does disclose some efforts on the part of appellants to create a market for the sale of these garments. Money from the sale of the machines was used to buy the garments from the machine purchasers.

In the beginning, appellants performed the sales work of the corporation, but in the fall of 1957 salesmen were hired to do this work. Instructions were given these salesmen by appellants and the written sales presentation or "sales pitch" procured from Detroit was put into use.

Late in 1957, differences arose between appellants. Beck resigned as President of the company but remained as Vice-President. His salary was discontinued as of December 31, 1957. Tuthill became President and the co-defendant, Conklin, came into the company as a stockholder and officer. Beck retained stock in the company but left Denver in January, 1958, on a trip to Europe. On this trip he attempted to make sales of the garments at several places in the United States. In Europe he spent most of his time at the factory where the knitting machines were manufactured and corresponded with Tuthill about the operation during this absence. After Beck's return to Denver in May, 1958, he resigned as Vice-President of the company and sold his stock to Conklin. The sale of all of his stock was consummated in June. The company continued to buy the knitting machines for resale from Beck and for the period from June, 1957, to June, 1959, Beck received a commission of $37 on each of at least 800 knitting machines sold by him or his privately owned company to California Sportswear of Colorado. In addition, he received substantial compensation from California Sportswear of Colorado during the time he was connected with it. Tuthill also received substantial compensation from California Sportswear of Colorado during the existence of the venture.

An example of the newspaper advertisements used to procure prospects is shown by Government's Exhibit 6-B run in the Denver Post on June 30, 1957, which read as follows:

"Help Wanted (female)

"Ladies work at home. We need 20 ladies to work at home 8-10 hrs. per week. Earn up to $35 weekly in your spare time. No experience necessary. No selling, canvassing, or telephoning. Call GE 3-0314. California Sportswear Corp."

The indictment charged the two appellants, together with others, with devising and intending to devise a scheme and artifice to defraud and to obtain money by false and fraudulent pretenses, promises and representations from a class of persons in and around Denver. As a part of the scheme, it is alleged that the California Sportswear Corporation of Colorado was incorporated May 24, 1957; that advertisements were placed in newspapers offering employment to a limited number of women in their homes on a part-time basis; that the financing of the purchase of the knitting machines was to enable the corporation to be paid for the purchase of the same; permitting the persons to be defrauded to produce items relatively easy to make for a few months and then require such persons to manufacture only items which were difficult to make; the realization of a profit of $200 to $270 on each knitting machine sold; and deceitfully inducing the purchasers of the machines to believe that the primary business of the company was the distribution and sale of knitted garments produced by the purchasers of the machines; and that the United States mails were used in specific instances to execute such scheme.

In furtherance of the scheme, the following false representations are alleged to have induced the purchase of the knitting machines: That the corporation was doing business primarily as a wholesaler and jobber of knitted garments and that the sale of the knitting machines was incidental; that the corporation had a large and expanding market for the knitted garments and needed quantities of the garments to fill existing orders; that the women could make a profit of $10 to $50 per week from knitting with a minimum of 15 hours work per week; that four or five hours of knitting per week would be sufficient to meet the monthly payments on the machine purchased; that the corporation would purchase for three years all garments knitted; the corporation would furnish all yarn when needed; that a pair of slippers would require only thirty minutes to complete; that a stole would require an hour or less to complete; and only a limited number of women were being selected by the corporation to do the home work.

Beck urges for reversal: Insufficiency of the evidence to sustain the verdicts; inadequacy of the instructions given to the jury; and error in the admission of testimony and documents.

Tuthill attacks the sufficiency of the evidence and points to the inadequacy of the instructions to the jury.

In this case there were two essential elements of proof for the government to meet in making a submissible case, (1) the existence of a scheme or artifice to defraud or for the obtaining of money by means of false pretenses, representations or promises, and (2) the use of the United States mails in furtherance of such scheme or artifice. Marvin v. United States, 10 Cir., 279 F.2d 451; Palmer v. United States, 10 Cir., 229 F.2d 861, cert. den. 350 U.S. 996, 76 S.Ct. 546, 100 L.Ed. 861; Webb v. United States, 10 Cir., 191 F.2d 512. Such proof may be made by either direct or circumstantial evidence. United States v. Ross, 92 U.S. 281, 23 L.Ed. 707; Whealton v. United States, CCA 3, 113 F.2d 710; Brady v. United States, CCA 8, 24 F.2d 397. No question is raised concerning proof of the use of the mails.

Fraud or the existence of a fraudulent scheme is seldom susceptible to proof solely by direct evidence and in nearly every such case, direct and circumstantial evidence together with the inferences to be drawn therefrom must be relied upon for proof. On the face of the business operation involved here, it may be argued that it was merely a legitimate business venture that did not work out successfully. That, however, was a question of fact, to be determined by the jury after considering all of the evidence and the inferences to be drawn therefrom.

From the voluminous trial record and the many exhibits received in evidence, it seems to us the government presented a strong and persuasive fraud case. The numerous newspaper advertisements used, many of which were admitted in evidence, are of a misleading character. They indicate a desire to offer home employment when in fact they were only lures put out to procure prospects for the sale of the knitting machines. At the very time these women were led to believe California Sportswear Corporation was a thriving knitted garment concern, actually it had no substantial market at all. The exorbitant profit made from the sale of each machine is another telling fact in the government's case. The so-called "sales pitch" or instructions to the salesmen, as shown by government...