Commonwealth v. Benesch

• Decision Date: 06 March 1935
• Citation: 194 N.E. 905,290 Mass. 125
• Parties: COMMONWEALTH v. BENESCH et al., two cases.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

290 Mass. 125

194 N.E. 905

COMMONWEALTH v. BENESCH et al., two cases.

Supreme Judicial Court of Massachusetts, Suffolk.

March 6, 1935

Exceptions from Superior Court, Suffolk County; Pinanski Judge.

Adolph B. Benesch, Davison, and Tibbetts were convicted of conspiracy to steal, and of conspiracy to sell securities on unapproved installment contract, and they bring exceptions.

Exceptions of Davison and Tibbetts as to conspiracy to steal sustained, exceptions of Benesch as to such conspiracy overruled, and exceptions of all three defendants as to conspiracy to sell securities sustained.

D. A. Foley, Asst. Atty. Gen., of Boston, for the commonwealth.

G. P. Beckford, of Boston, for defendant Davison.

M. Morton, Jr., and E. R. Hale, both of Boston, for defendants Benesch and Tibbetts.

QUA Justice.

These two indictments are now before this court on the exceptions of the defendants Benesch, Davison, and Tibbetts. The first indictment charges these defendants together with others as to whom the cases have been disposed of and who are not now before the court with conspiring to commit the crime of stealing the property of persons unknown. The second indictment charges the same persons with conspiring to have registered brokers or salesmen sell securities in accordance with an instalment or partial payment contract which was not approved by the Public Utilities Commission.G. L. c. 110A, § 8, as amended by St. 1924, c. 487, § 4. Both indictments grow out of the operations of a Massachusetts corporation known as New England Investment Trust, Inc. (name later changed to New England Investment Shares, Inc.), hereinafter called the Trust, during the period from June 1, 1926, to March 1, 1928, at which time the corporation went into the hands of a receiver.

The method by which the business of the Trust was conducted, in so far as it is necessary to state it for the purposes of this decision, was as follows: The Trust sold to the public ‘ Collateral Trustee Shares,’ so called. With the money obtained from the sales the Trust purchased in the market quantities of certain standard stocks in a large number of different enterprises registered on the exchanges, and deposited these stocks with a designated bank to hold as ‘ underlying shares.’ On the order of the Trust the bank would issue to each purchaser a certificate of ownership of the number of collateral trustee shares purchased by him. These shares were issued against the stocks purchased and represented the proportionate interest which the purchaser owned in the underlying shares. For convenience the collateral trustee shares and the underlying stocks were divided into ‘ blocks' in such a manner that each block would be worth approximately $10,000, and a single collateral trustee share would sell for about $10, thus representing one thousandth part of a block. The value and the price would vary, however, with the changing market values of the underlying shares. A purchaser could buy as many collateral trustee shares as he wished up to an amount sufficient to represent one or more entire blocks. The Trust sold these shares both for cash and on instalment plans under which the certificate was not to be issued until the price was fully paid. Shares were also sold on the so called collateral deposit plan under which the purchaser continued to owe the purchase price of the shares, but pledged other securities with the Trust as collateral for the obligation. Among the supposed advantages of this form of investment were that it gave the small investor an opportunity to obtain wide diversification and also competent supervision in the selection from time to time of the underlying shares. For the purposes of this decision the enterprise may be assumed to have been in itself a lawful and proper one. It is obvious, however, that the safety of the purchaser's money depended upon the prompt and faithful performance by the Trust of its duty to purchase the underlying shares, so that the collateral trustee shares would represent real and substantial value. The Trust developed into a large business. By the time of the receivership over $10,000,000 worth of collateral trustee shares had been sold.

1. We will deal first with the indictment charging conspiracy to steal. Under this indictment it is contended by the commonwealth that during the period in question the Trust to a greater and greater degree as time went on failed to purchase underlying shares in sufficient quantity to ‘ cover’ the collateral trustee shares which were being sole on partial payments and on collateral deposits, so that to a large extent these shares came to represent little of value beyond the liability of the Trust to make good its promises, although the Trust continued to assert to prospective purchasers that the underlying shares were being bought; and that the several defendants were in control of or connected with the Trust, knew the facts, and had conspired together to commit larceny by obtaining money from purchasers by means of false pretenses.G. L. c. 266, § 30. The books showed that by June 30, 1927, the amount necessary to complete the purchase of underlying shares was over $3,000,000. As to this indictment, the defendant Benesch, who it appears from his own testimony was ‘ general manager and everything’ of the Trust and as to whom there was plenary evidence of participation in all its activities, does not now argue that there was no evidence to go to the jury against him together with other defendants not now before the court, but he does contend that many errors were committed in admitting and in failing to strike out evidence. The defendants Davison and Tibbetts make the further contention that there was no evidence at all on which they could be held as conspirators. We deal first with the defendant Davison.

There was evidence against Davison from which it could be found that he was one of the original promoters of the Trust; that a certificate for three thousand, nine hundred and ninety-seven shares of its capital stock was made out in his name before the date specified in the indictment as the commencement of the conspiracy and was indorsed by him in blank that he owned a large interest in and at one time controlled another corporation known as the Discount Company of New England, which ‘ owned’ the Trust, through which as broker the Trust made sales of shares and which later was ‘ merged’ with the Trust; that he had an office in the office of the Trust and was familiar with the kind of business which it was doing; that his name appeared on the payroll of the Trust from which he drew money at various times aggregating large sums, mostly in cash; that he did ‘ some work’ for the executive department; that the Trust paid for his stenographer and for certain hotel bills and his office rent after he moved ‘ down stairs'; that a certificate for one thousand, nine hundred and nineteen shares of the capital stock of the Trust stood in the name of his stenographer; that in a few instances he was the source of certain sales by the Trust of collateral trustee shares and received commissions on account of those sales and that he testified before the grand jury to the effect that, having heard from a purchaser of collateral trustee shares that the purchaser had received a dividend from the office of the Trust and not from the bank, he asked Benesch for an explanation, and Benesch said he had temporarily used those certificates and they would be back next week, that Davison asked ‘ Are you short any more?’ and Benesch replied ‘ Very little’ and that they would be back next week, and that Davison thereupon called up the purchaser and said it was the first information he (Davison) had that ‘ They have not everything covered,’ and that he did not like it. When this occurred does not appear. The competency of some of this evidence is challenged, but because of the conclusions to which we have come it is not now necessary to pass upon its admissibility. Parts of the evidence relating to Davison and some of his own testimony are obscure and unsatisfactory. His contention was, in brief, that about the time when the Trust began business and before the first date mentioned in the indictment he sold out his entire interest in the discount company to or for the benefit of the Trust, that moneys which he received from the Trust and the use of office room and stenographer were in consideration for the sale of his interest and in accordance with an agreement made at the time of that sale, and that he never in fact owned any of the stock of the Trust or had anything to do with its business or management, and knew nothing of its failure to purchase the underlying securities. Davison never held any office in the Trust. If he was in fact employed by it in some capacity, the nature of his duties does not appear. There is no evidence that he had anything to do with the purchase of underlying shares or that he knew they were not being purchased or that the collateral trustee shares were not kept covered (except for his talk with Benesch stated above, from which it might be inferred that the underlying shares were temporarily short a ‘ very little,’ to be replaced ‘ next week’ ) or that he had access to the books or to other sources of information which would have indicated that these shares were not being purchased as needed or that he knew that the Trust continued to make representations that the shares were being purchased when in fact they were not. We have in mind that conspiracies as a rule can be established only by circumstantial evidence. But circumstances must be shown from which a reasonable inference can be drawn...