Boggess v. Com.

• Decision Date: 07 November 1969
• Citation: 447 S.W.2d 88
• Parties: Blue Sky L. Rep. P 70,833 Earl L. BOGGESS, Appellant, v. COMMONWEALTH of Kentucky, Appellee.
• Court: United States State Supreme Court — District of Kentucky

Page 88

447 S.W.2d 88

Blue Sky L. Rep. P 70,833

Earl L. BOGGESS, Appellant, v. COMMONWEALTH of Kentucky, Appellee.

Court of Appeals of Kentucky.

Nov. 7, 1969.

Thomas F. Marshall, Frankfort, Henry Jack Wilson, Mayfield, for appellant.

John B. Breckinridge, Atty. Gen., Frankfort, John B. Browning, Asst. Atty. Gen., Frankfort, for appellee.

REED, Judge.

The appellant, Earl Boggess, and Charles Willis were indicte jointly for an alleged violation of KRS 292.320(1)(c) which is part of the Kentucky 'Blue Sky' law. Willis was not apprehended and Boggess alone was tried. His trial resulted in a jury verdict which found him guilty and fixed his punishment at a fine of $5,000 and a jail sentence of one year. (KRS 292.991). Boggess appeals from the judgment entered pursuant to this verdict. He asserts that the indictment returned against him failed to state a public offense; that he was entitled to a directed verdict of acquittal; that the verdict returned is not sustained by the evidence; and that the lower court failed to properly instruct the jury. We have concluded that the prosecution's evidence was insufficient to permit submission to the jury of the issue of appellant's guilt of the offense charged in the indictment and that appellant was entitled to a directed verdict of acquittal. We, therefore, reverse the judgment of conviction.

The evidence adduced at the trial included proof of circumstances that are irrelevant to the disposition of this appeal. For the sake of brevity, we will state that we are convinced that the prosecution's evidence sufficiently established that Boggess was a coprincipal with Willis in the transactions which gave rise to the indictment. Hence, we will omit recitation of that portion of the evidence introduced to establish that element of the alleged offense.

Boggess and two other business associates formed a corporation in April, 1964 The corporate name was 'Insurance Group, Inc.' The purpose of this entity was to find and purchase existing operating insurance companies. Willis was not one of the incorporators, but he loaned Boggess money which Boggess, in turn. used to pay in to the new corporation as part of a stock subscription. Boggess paid cash, executed and delivered to the corporation his promissory note, and rendered services in consideration of all of which he was issued 34,500 shares of common stock. Boggess was a director of the new corporation and served as its secretary. The corporation promptly made application to the director of securities of the State Banking Department for authorization to sell to Kentucky residents 247,000 shares of common stock at $5 a share in order to raise about $1,000,000 in capital after deducting expenses of sale. The proceeds of sale of the public issue were deposited in a bank which acted as escrow agent. The purchasers of the public issue were protected by the requirement that the escrow agent was bound to hold these proceeds until sale of the public issue was completed; it was further required that the public issue be sold in fully by December 15, 1965, and in the event of failure to do so the escrow agent was directed to refund to each purchaser of the public issue stock the purchase price less a deduction of 15 percent for expenses of sale. Under KRS 292.380(2), another section of the 'Blue Sky' law, the securities director required Boggess to deliver his 34,500 shares of promotional stock into the custody of the Department of Banking to be held in escrow under an agreement that had the effect of protecting the potential purchasers of the proposed public issue. This promotional stock escrow agreement provided that the owner of this stock would not be entitled to sell, transfer, or withdraw it from escrow until all other stockholders (the purchasers of the public issue) had been paid a dividend or dividends aggregating not less than 6 percent of the initial offering price. The source of this dividend was required to be approved by the securities director as actual earnings on the common stock investment; this agreement further provided that in case of dissolution or insolvency during the time the promotional stock was held in escrow, the owners of the promotional stock could not participate in the assets of the corporation until after the owners of all other securities had been paid in full.

While this application for authority to sell the public issue, of which the promotional stock escrow agreement was a part, was filed and pending, and, more particularly, in August of 1964, Willis approached the prosecuting witness, Keeling, and offered to get Keeling 'in on the ground floor' of a 'good deal.' Willis told Keeling he could get him in for $3 a share for the common stock; that the public would be charged $5 a share for the common stock; Keeling paid Willis $1500 for 500 shares.

On December 15, 1964, the securities director approved the sale of the public issue to be completed by December 15, 1965. Boggess thereupon assigned to Willis 10,135 shares of his promotional stock, subject to its release by the Department of Banking. According to Boggess this assignment was to secure his preexisting loan from Willis.

Meanwhile, keeling had apparently had no further contact with Willis. In the early part of 1965, Keeling received from Willis an assignment of 500 shares of the stock Boggess had assigned to Willis. The assignment to Keeling recited the payment of $1500 to Willis. In this assignment Willis promised and agreed that 'upon release of the said stock from escrow with the Department of Banking on demand of Keeling', Willis would 'execute and deliver to Keeling such further instruments as may be necessary to vest legal title to said shares' in Keeling. The assignment from Boggess to Willis was explicitly mentioned in the assignment from Willis to Keeling. At the foot of the assignment to Keeling, there was a recitation that the corporation acknowledged receipt of and accepted the assignment and would perform the obligations of the instrument; this recitation was executed on behalf of the corporation by Boggess as corporate secretary. Keeling also received a letter from Boggess as corporate secretary. This letter stated that Willis had advised Boggess of the arrangements with Keeling. Keeling was thanked for his 'assistance to Willis' and for his interest in the new corporation.

At least by the late summer of 1965, it became apparent that the public issue was fatally floundering and would not be sold out successfully. It appears that desperate efforts were made to bail the venture out by attempted arrangements to procure its acquisition by another going corporation on a stock exchange basis. Keeling was advised of these efforts by an attorney for the corporation in early 1966. Only about $164,000 was realized from sales of the public issue within the period prescribed by the offering. The purchasers of the public issue were refunded 85 percent of their investment. The director of securities retained the promotional stock in escrow. There was no money left to distribute to the owners of the promotional stock nor to their assignees. Boggess and Willis were indicted.

At the trial other individuals who had dealt with Willis in the 'ground floor' deal to their sorrow testified. Two instances were introduced where Boggess had assigned other shares of his promotional stock directly to individuals. This evidence was introduced to show motive, intent, and to demonstrate a common scheme or design.

KRS 292.320(1) says:

'(1) It is unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly:

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.'

KRS 292.991 provides a criminal penalty for any person who 'willfully' violates KRS 292.320.

The indictment charges that Willis and Boggess violated KRS 292.320(1)(c) by 'unlawfully, in connection with the offer and sale of Five Hundred (500) shares of stock of Insurance Group, Inc., to Rudy Keeling, engaged in an act, practice and course of business which operated as a fraud and deceit upon said Rudy Keeling, by obtaining $1500 from him and selling him said stock which they could not do because said stock was in escrow with the Department of Banking of the Commonwealth of Kentucky and could not be sold, * * *.'

Boggess asserts that the indictment does not...