Commonwealth v. Harrison

• Decision Date: 12 October 1939
• Docket Number: 203-1939,202-1939
• Citation: 137 Pa.Super. 279,8 A.2d 733
• Parties: Commonwealth v. Harrison, Appellant. Commonwealth v. Mandel, Appellant
• Court: Pennsylvania Superior Court

8 A.2d 733

137 Pa.Super. 279

Commonwealth v. Harrison, Appellant.

Commonwealth v. Mandel, Appellant

Nos. 203-1939, 202-1939

Superior Court of Pennsylvania

October 12, 1939

Argued March 13, 1939

Appeals from sentences of Q. S. Allegheny Co., April Sessions, 1938, Nos. 322 and 328, in cases of Commonwealth v Myer Harrison and Commonwealth v. Joseph Mandel.

Indictments charging violations of Securities Act. Before Culver, P. J. specially presiding.

Verdicts of guilty and judgment and sentence thereon. Defendants appealed.

Error assigned, among others, in each case, was refusal of new trial.

Convictions in No. 202 affirmed; conviction in No. 203, as to first count reversed and affirmed as to each of the remaining counts.

A. M. Oliver, for appellants.

Russell H. Adams, Assistant District Attorney, with him Andrew T. Park, District Attorney, for appellee.

Before Keller, P. J., Cunningham, Baldrige, Stadtfeld, Parker, Rhodes and Hirt, JJ.

OPINION

Hirt, J.

Foundation Realty Company, a Pennsylvania corporation, was engaged in the development and sale of a real estate subdivision in Baldwin Township, Allegheny County, known as Baldwin Manor. Myer Harrison was its president and Joseph Mandel its vice-president. It is now in the hands of receivers for liquidation. These defendants were charged in separate indictments with violations of The Securities Act of April 13, 1927, P. L. 273, 70 P. S. 1, and were convicted and sentenced. The specific charges are that each of them sold or disposed of stock of this corporation without first having registered as a dealer in accordance with the provisions of Section 3 of that act. That section provides that no dealer nor salesman nor agent in behalf of any dealer shall "sell, offer for sale, tender for sale or delivery, or solicit subscriptions to or orders for, or dispose or undertake to dispose of, or invite offers for or inquiries about, any securities within this State," without first being registered as in this act provided. Neither of these defendants nor the corporation was registered with the Pennsylvania Securities Commission in accordance with the act.

Several methods were employed by these defendants in disposing of the stock of the corporation. In some instances preferred and common stock were sold outright to a purchaser, or the preferred stock alone was sold with the common stock as a bonus. In others the transaction took the form of loans to the corporation. A subscriber, at the solicitation of defendants, made advancements to the corporation and received the note of the corporation for the amount advanced together with the corporation's agreement to invest the proceeds in real estate. In each instance one hundred shares of common stock was issued to the subscriber for each one thousand dollars loaned to the company, and the corporation agreed to pay its note given to the subscriber, from the net proceeds of the first sale of real estate made by it, the common stock to be retained by the subscriber in consideration of his supplying capital to the company. There was also a variation of this latter method. In some transactions subscribers gave notes to the corporation for the amount of their subscriptions and at the same time delivered securities to the company which in each instance exceeded in marketable value the amount of the subscriber's note. These securities were rehypothecated by the defendants with the consent of the subscriber with the understanding that the proceeds of loans raised on the collateral would pay the subscription and would be used by the corporation in the purchase, development, and sale of real estate.

Each of the defendants was convicted by the jury on counts in the indictment based on transactions falling within one of the above classes, and the testimony as to each count submitted to the jury is sufficient to support the charge that each of the defendants sold or disposed of stock of the corporation. The issuing of common stock to a subscriber in consideration of a loan of capital to the corporation is disposing of stock within the purview of the act.

The Commonwealth, on the trial of these cases, following the admission that defendants were not registered, proved that they sold or disposed of the stock, and then rested. In the act there are certain exceptions limiting the definition of a "dealer." In Section 2(C) the act provides: "The term 'dealer' shall include every person or entity, other than a salesman who engages in this State, either for all or part of his or its time, directly or through an agent, in selling . . . . or undertaking to dispose of . . . . or dealing in, any manner in any security or securities within this State, including securities issued by such entity." Then follows a provision that transactions of certain types shall not constitute the person a dealer within the meaning of this act, among them, "wherein the issuer, a company organized under the laws of this State, disposes of its own securities, in good faith and not for the purpose of avoiding the provisions of this act, for the sole account of the issuer, without any commission or fee, and at a total expense of not more than three per centum of the proceeds realized thereon, . . . ."

When the Commonwealth rested after proving sales of securities by both defendants it was then incumbent upon them, since they admitted they were not registered, to prove that their acts in disposing of stock came within the exceptions and did not constitute them dealers under the definitions of the act. In a case of this nature the burden is never upon the Commonwealth to prove negatively that a defendant does not come within a proviso or an exception of a statute: 1 Wharton's Crim. Ev., sec. 202; Com. v. Wenzel 24 Pa.Super. 467. To the same effect is Com. v. Johnson, 89 Pa.Super. 439, construing the predecessor of the act under consideration here; in that case the ruling "that if the defendant claimed exemption from prosecution under any other exception in the act the responsibility was upon him to bring himself within such exception," was...