Coplin v. United States, 8090.

• Citation: 88 F.2d 652
• Decision Date: 22 March 1937
• Docket Number: No. 8090.,8090.
• Parties: COPLIN et al. v. UNITED STATES.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

88 F.2d 652 (1937)

COPLIN et al. v. UNITED STATES.^*

No. 8090.

Circuit Court of Appeals, Ninth Circuit.

March 1, 1937.

Rehearing Denied March 22, 1937.

COPYRIGHT MATERIAL OMITTED

Fred Horowitz, of Los Angeles, Cal., Nat Schmulowitz, of San Francisco, Cal., Cameron Sherwood, of Walla Walla, Wash., and Hamlet P. Dodd, of Seattle, Wash., for appellants.

J. Charles Dennis, U. S. Atty., and Gerald Shucklin and F. A. Pellegrini, Asst. U. S. Attys., all of Seattle, Wash. (J. Albert Woll and Tom E. DeWolfe, Sp. Assts. to Atty. Gen., and R. E. Kline, Jr., Asst. to Gen. Counsel, Securities and Exchange Commission, of Washington, D. C., of counsel), for the United States.

Before WILBUR, GARRECHT, and HANEY, Circuit Judges.

GARRECHT, Circuit Judge.

Fifteen men, residents of California and New York, were indicted on charges of using the mails to defraud, of violating the Federal Securities Act of 1933 (section 17 (a) (2), 15 U.S.C.A. § 77q (a) (2), and of conspiring to commit the two foregoing types of crime. The indictment contained eleven counts, one of which was dismissed. The appellants were convicted under Count IX, which charged a violation of the Security Act, and were acquitted on all other counts. All other defendants were acquitted on all counts. None of the defendants took the stand.

The indictment, including Count IX, related to the sale of the stock of the Arizona Comstock Company, a mining enterprise with properties in Nevada. None of the fifteen defendants were officers or agents of the mining company, but all were charged for their alleged acts in connection with certain selling corporations, of which they were officers, agents, managers, or salesmen.

The acts complained of began on May 20, 1933, when Ben Blue, one of the acquitted defendants, signed an underwriting contract with the Arizona Comstock corporation. The three selling agencies for the corporate stock, one of which operated in Seattle, Wash., were Alexander-Coplin & Co., of Nevada; V. E. Graham & Co., of New York; and Alexander-Coplin & Co., of Washington.

The stock was first admitted to trading on the Seattle Mining Exchange about August 1, 1933, that exchange being the one mentioned in Count IX. On other closely related dates in the summer of 1933, the stock was admitted to trading on the New York Produce Exchange and the San Francisco Mining Exchange. Customers were first reached through contact men, who interested the prospective purchasers in a securities service offered by those corporations. All such "prospects" were then sent prospectuses of the Arizona Comstock corporation, in the form prescribed by the Securities Act.

Before any advertising material was sent out to prospective customers, however, the contact men obtained lists of the marketable securities that the prospects owned. The lists later were turned over to the salesmen, who would induce the prospective buyers to turn in their other stocks in exchange for Arizona Comstock stock. This method of "high-powered salesmanship" was used in the transaction that forms the basis of Count IX, as will be shown later.

Alexander Coplin, one of the appellants herein, went to Seattle and organized Alexander-Coplin & Co. in the latter part of April, 1933. Leland Godfrey managed the office until July 1, 1933, when L. R. Coplin, the father of Alexander Coplin, took it over until September 12 of that year. Alexander Coplin then returned to Seattle from Reno, Nev., remaining in Seattle until November 20, when the office closed. Both in Reno and in Seattle, Alexander Coplin was in charge of the books and the general office work of the Coplin companies.

The appellant Serlis was in general charge of the salesmen in Reno, and was in that city most of the time, making occasional trips to Seattle, for consultation with L. R. Coplin and Alexander Coplin. It is conceded that Serlis was in Seattle on November 16, and there is evidence that he was in that city also on November 17, the date on which occurred the telephone conversation that forms the basis of Count IX.

Joseph Konwiser was one of more than a half dozen salesmen in the Seattle office, some of whom were indicted and some were not. His selling partner was Irving Snyder, one of the acquitted defendants. There was evidence that Konwiser and Snyder were the first salesmen who used the telephones in the Seattle office for calling prospective customers, from August 1 to "the middle of November." Konwiser conducted branch offices in Spokane and Vancouver, Wash., for short periods during the months of October and November, 1933. He was in Vancouver, Wash., just prior to the closing of the Seattle office, from the last week in October to about November 7. While in Vancouver, he told the switchboard operator that Serlis was "the boss."

Such was the setting in the Seattle office of Alexander-Coplin & Co. and such were the positions occupied therein by the three appellants on November 17, 1933, the date on which they are charged in Count IX with having violated the provisions of 15 U.S.C.A. § 77q (a) (2).

Section 77q reads in part as follows:

"(a) It shall be unlawful for any person in the sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly —

"(1) to employ any device, scheme, or artifice to defraud, or "(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading."

Stripped of its formal portions, Count IX contains the following allegations: "That the said defendants, * * * being engaged in the sale of a security, to wit, the capital stock of the said Arizona Comstock Company, at Seattle, * * * on or about November 17, 1933, did knowingly, wilfully, unlawfully and feloniously make use of a means of communication in interstate commerce, to wit, the long distance telephone between Seattle, Washington, and Astoria, Oregon, to obtain money and property by means of omission to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; that is to say, the said defendants did then and there make use of the said instrument of long distance telephone at Seattle, aforesaid, to solicit Dr. R. J. Pilkington at Astoria, Oregon, to purchase additional stock of the said Arizona Comstock Company calling attention to the rising price of the said stock on the Seattle Mining Exchange but omitting to state that the price was caused to rise by the buying and selling on the said Exchange by the said defendants themselves and the bids placed by the said defendants from day to day at gradually advancing prices; * * *" While there are 22 assignments of error, many of them can be considered in groups. We will endeavor to deal with the appellants' main propositions in logical order.

First, it is asserted that the Securities Act of 1933 (see 15 U.S.C.A. § 77a et seq.) is unconstitutional in its entirety. While the appellants state that their brief does not raise this question "directly," the fundamental nature of the proposition merits some consideration.

In the brief time that has elapsed since the Securities Act was passed, federal courts repeatedly have declared it to be constitutional, as being well within the scope of congressional authority.

In Securities and Exchange Commission v. Wickham, 12 F.Supp. 245, 246, the District Court of Minnesota held that: "The regulation of interstate traffic in securities is clearly within the scope of congressional action and an appropriate field for federal regulation."

In similar language, the act was sustained by the District Court of New York in Securities and Exchange Commission v. Jones, 12 F.Supp. 210, 213, 214: "Admittedly, the line of demarcation between what Congress may and what it may not prohibit with regard to interstate commerce is difficult to state with accuracy. From the foundation of the government the Supreme Court has struggled with the task. Nevertheless, on the decisions of our highest court — which are assembled and discussed with discrimination in Brooks v. United States, 267 U.S. 432, 45 S.Ct. 345, 69 L.Ed. 699, 37 A.L.R. 1407 — I feel no hesitancy in classing the Securities Act of 1933, in so far at least as I must pass on it in the present case, as well within the power of Congress to enact."

The Jones Case was affirmed by the Circuit Court of Appeals for the Second Circuit. Jones v. Securities and Exchange Commission, 79 F.(2d) 617. The Supreme Court reversed the case on the question of the Commission's power to forbid the withdrawal of a registration statement. The court expressly refrained from expressing any views as to the constitutionality of the statute, Mr. Justice Sutherland saying: "Fourth. The foregoing disposes of the case and requires a reversal of the judgment of the lower court. In that view, it becomes unnecessary to consider the constitutional validity of the act." Id., 298 U.S. 1, 18-25, 28, 56 S.Ct. 654, 658-661, 663, 80 L.Ed. 1015.

In a case involving the same parties but different matters, the constitutionality of the act of 1933 was again attacked. The District Court referred to the fact that the Circuit Court of Appeals for the Second Circuit had held the act constitutional, and that "the Supreme Court in reversing the result did not reverse that ruling." Securities and Exchange Commission v. Jones (D.C.) 15 F.Supp. 321, 322. Similar reference was made by the Circuit Court of Appeals, in affirming the District Court's order denying a motion to suppress evidence secured from the defendant Jones, and to dismiss the suit. Id., 85 F.(2d) 17, certiorari denied, October 19, 1936, 57 S.Ct. 46, 81 L.Ed. ___.

In a well-reasoned case, United States v. Bogy, 16 F.Supp. 407, 413, the District C...