Buffo v. State

• Decision Date: 25 November 1980
• Docket Number: 3 Div. 97
• Parties: Blue Sky L. Rep. P 71,647 Pete J. BUFFO v. STATE.
• Court: Alabama Court of Criminal Appeals

Page 1146

415 So.2d 1146

Blue Sky L. Rep. P 71,647

Pete J. BUFFO v. STATE.

3 Div. 97.

Court of Criminal Appeals of Alabama.

Nov. 25, 1980.

Rehearing Denied Jan. 20, 1981.

Charles M. Crook of Smith, Bowman, Thagard, Crook & Culpepper, Montgomery, for appellant.

Charles A. Graddick, Atty. Gen., and Thomas R. Allison, Asst. Atty. Gen., for appellee.

HARRIS, Presiding Judge.

Appellant, a California real estate appraiser, was indicted in a three-count indictment with aiding, abetting, encouraging or otherwise assisting Vanguard Security Life Insurance Company, an Alabama corporation, in a securities fraud in violation of Act 542, now codified as Ala.Code § 8-6-17 (1975). Appellant was properly arraigned in the presence of counsel and interposed a plea of not guilty. Appellant was convicted as charged and the jury assessed a fine of $4,000.00. As additional punishment the trial court sentenced appellant to three years in the state penitentiary. These penalties are provided in Alabama Code § 8-6-18 (1975). After sentencing, appellant gave notice of appeal and is represented here by counsel of his choice as he was at trial. The trial court ordered appellant's sentence suspended pending this appeal.

Omitting only its formal parts, appellant's indictment is set out as follows:

"Count I ... Pete J. Buffo, whose name is to the Grand Jury otherwise unknown, did, in connection with the offer, sale, or purchase of any security, to-wit: Surplus notes issued by Vanguard Security Life Insurance Company, a corporation, (hereinafter referred to as Vanguard), directly or indirectly employ a device or devices, scheme or schemes, or artifice or artifices to defraud, to-wit: the said Pete J. Buffo did aid, abet, encourage or otherwise assist Vanguard to falsify, inflate, or exaggerate appraisals of certain real estate owned or held by Vanguard, in that on two occasions the said Pete J. Buffo did provide appraisals on real estate in Palm Springs, California owned or held by Vanguard; and further, that the said Pete J. Buffo knew or should have known that the said appraisals would be submitted by Vanguard to the Insurance Commission of the State of Alabama, (hereinafter referred to as the Commission) in accordance with the laws of the State of Alabama and provide in whole or in part the monetary basis, economic foundation, or capital assets upon which the commission could determine the standing of Vanguard to do business in the State of Alabama; and further, that relying on the falsified, inflated or exaggerated appraisals, the Commission did allow Vanguard to do business in the State of Alabama, contrary to Act 542, Section 1, Regular Session of the Legislature of Alabama, 1959, ..."

"Count II ... Pete J. Buffo, whose name is to the Grand Jury otherwise unknown, did, within five years of the finding of this indictment, in connection with the offer, sale, or purchase of any security to-wit: Surplus notes issued by Vanguard Security Life Insurance Company, a corporation, (hereinafter referred to as Vanguard), directly or indirectly make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, to-wit: the said Pete J. Buffo did aid, abet, encourage or otherwise assist Vanguard to falsify, inflate, or exaggerate appraisals of certain real estate owned or held by Vanguard, in that on two occasions the said Pete J. Buffo did provide appraisals on real estate in Palm Springs, California, owned or held by Vanguard; and further, that the said Pete J. Buffo knew or should have known that the said appraisals would be submitted by Vanguard to the Insurance Commission of the State of Alabama, (hereinafter referred to as the Commission) in accordance with the laws of the State of Alabama and provide in whole or in part the monetary basis, economic foundation, or capital assets upon which the Commission could determine the standing of Vanguard to do business in the State of Alabama; and further, that relying on the falsified, inflated or exaggerated appraisals, the Commission did allow Vanguard to do business in the State of Alabama, contrary to Act 542 Section 1, Regular Session of the Legislature of Alabama, 1959, ...."

"Count III ... Pete J. Buffo, whose name is to the Grand Jury otherwise unknown, did, within five years of the finding of this indictment, in connection with the offer, sale or purchase of any security, to-wit: Surplus notes issued by Vanguard Security Life Insurance Company, a corporation, (hereinafter referred to as Vanguard), directly or indirectly engage in an act, practice or course of business which operated or would have operated as a fraud or deceit upon any person, to-wit: the said Pete J. Buffo did aid, abet, encourage or otherwise assist Vanguard to falsify, inflate, or exaggerate appraisals of certain real estate owned or held by Vanguard, in that on two occasions the said Pete J. Buffo did provide appraisals on real estate in Palm Springs, California owned or held by Vanguard; and further, that the said Pete J. Buffo knew or should have known that the said appraisals would be submitted by Vanguard to the Insurance Commission of the State of Alabama (hereinafter referred to as the Commission) in accordance with the laws of the State of Alabama and provide in whole or in part the monetary basis, economic foundation, or capital assets upon which the Commission would determine the standing of Vanguard to do business in the State of Alabama; and further, that relying on the falsified, inflated or exaggerated appraisals, the Commission did allow Vanguard to do business in the State of Alabama, contrary to Act 542, Section 1, Regular Session of the Legislature of Alabama, 1959, ...."

Alabama Code § 8-6-17 (1975), upon which the indictment is based, reads in its entirety:

"It is unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly, to:

(1) Employ any device, scheme or artifice to defraud;

(2) Make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or

(3) Engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person."

The Honorable George Beck testified that, while serving as Deputy Attorney General, he had a telephone conversation with appellant in late spring of 1976. Appellant was in California and Beck was in Alabama. Beck informed appellant he was investigating the operations of Vanguard Insurance Company on behalf of the Alabama Department of Insurance and that he wanted to discuss certain appraisals appellant had made for Vanguard in 1974 and 1976. The appraisals concerned California property located near Palm Springs. Appellant told Beck he had made the 1974 and 1976 appraisals and that they were accurate.

On cross-examination Beck stated that the capital account of Vanguard had become impaired and that receivership proceedings were filed against Vanguard because of that deficiency. Beck indicated that appellant talked openly during the conversation which was recorded and volunteered to come to Alabama if necessary. The transcript of this conversation, which was admitted into evidence, bears appellant's frankness out and does not hint of any conspiracy to defraud the Department of Insurance. Nor is the offer, sale or purchase of a security even mentioned.

Beck further testified that Vanguard acquired the California property from Dari-International, Inc., a Washington corporation doing business in California, partially through the issuance of a surplus note, the purported security appellant allegedly conspired with Vanguard to "offer, sale or purchase." In addition to the surplus note, Vanguard was to "pay Dari one half of the net profits derived from the subdivision, development, and sale of the land."

The terms of the surplus note itself were that Vanguard was to pay Dari-International $50,000.00 with 6% interest per annum on or before June 30, 1979, but only if Vanguard's surplus account exceeded $3,100,000.00 as determined in accordance with the insurance laws of Alabama. The surplus note was executed on June 30, 1974 by James L. Hinton and Robert H. Pinkston, the president and treasurer, respectively, of Vanguard. The surplus note was incorporated by reference in the contract for the sale of the two parcels of property in question. This contract was also executed on June 30, 1974 by representatives of Vanguard and Dari-International. Appellant's name or participation in this land purchase transaction is nowhere mentioned in either the contract or surplus note.

The contract instrument does provide that Dari-International was to furnish Vanguard appraisal reports, prepared by appraisers acceptable to the Department of Insurance of the State of Alabama, demonstrating the present market values of the two parcels to be in aggregate not less than $1,180,775.00. It should be noted the contract provided that, in lieu of the surplus note/division of net profit arrangement previously described, Dari-International had the option to receive eight surplus notes in the amount of $100,000.00, four surplus notes in the amount of $50,000.00 and one surplus note in the amount of $55,777.00. In short, according to the terms of the contract, Dari-International was to give up property just about equivalent in value to what it received from Vanguard and vice versa. Vanguard and Dari-International appeared to be dealing at arm's length and there is no evidence whatsoever that either party fraudulently offered, sold or purchased any security from or to the other. The record is devoid of any evidence that appellant took any part in these transactions at all.

Beck stated on redirect that, on June 3, 1974, appellant...