Elbel v. United States, No. 8306.

CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)
Writing for the CourtMURRAH, , SETH, Circuit , and CHRISTENSEN
Citation364 F.2d 127
Decision Date14 July 1966
Docket NumberNo. 8306.
PartiesDonald R. ELBEL, Appellant, v. UNITED STATES of America, Appellee.

364 F.2d 127 (1966)

Donald R. ELBEL, Appellant,
v.
UNITED STATES of America, Appellee.

No. 8306.

United States Court of Appeals Tenth Circuit.

July 14, 1966.


364 F.2d 128
COPYRIGHT MATERIAL OMITTED
364 F.2d 129
Murry L. Randall, St. Louis, Mo. (Morris A. Shenker, St. Louis, Mo., Herbert Fredman, Overland, Kan., and Joseph H. McDowell, Kansas City, Kan., with him on brief), for appellant

Thomas E. Joyce, Kansas City, Kan. (Newell A. George, U. S. Atty., Mahlon M. Frankhauser, Atty. and Asst. Director, and David J. Myerson, Atty., Securities & Exchange Commission, Washington, D. C., with him on brief), for appellee.

Before MURRAH, Chief Judge, SETH, Circuit Judge, and CHRISTENSEN, District Judge.

MURRAH, Chief Judge.

This is an appeal by Elbel from a judgment and sentence pursuant to a guilty verdict on five counts of an indictment charging separate violations of the anti-fraud provisions of the Security Act of 1933, 15 U.S.C. § 77q(a), and eight counts of mail fraud in violation of 18 U.S.C. § 1341.1 All counts essentially accuse the appellant of having devised an unlawful scheme to offer and sell investment certificates of the Coffeyville Loan and Investment Company (herein called CLIC) by means of fraudulent misrepresentations, specific failures to state material facts, by engaging in misleading transactions which deceived purchasers of the securities; and use of the mails to either make these representations or to deposit monies derived from sale of the certificates.

It is noteworthy at the outset that Elbel does not deny performance of the specific acts and transactions relied upon by the Government to prove each count on which he was convicted. He simply says that the evidence was entirely insufficient to prove that he intended to devise a scheme to defraud — an essential element of every count on which he was convicted.

The basic facts are that on February 7, 1958, appellant-Elbel indirectly purchased2 substantially all of the outstanding common stock of CLIC and contracted to purchase all its preferred stock on an installment basis. Appellant became the president of the company and assumed control of its operations which consisted of investing monies received from the public sale of investment certificates in secured loans, selling insurance, and servicing mortgages held by other investment institutions. CLIC also owned 90% of

364 F.2d 130
the outstanding stock of Pepsi-Cola Moken Inc

Upon acquisition of CLIC, Elbel continued the sale of the investment securities by means of an extensive advertising campaign and immediately began developing lines of credit with banks located throughout the country and particularly with the Arizona Savings and Loan Association (herein called ASLA). These organizations loaned money to CLIC which was in turn loaned to various corporations owned by Elbel, particularly the Elbel Construction Company. Elbel sold CLIC's Pepsi Cola stock to Elbel Enterprises for a book loss of $292,000. In an effort to offset CLIC's losses on this transaction and other losses incurred under prior ownership as well as to reduce the debt owed CLIC by the Elbel Construction Company, CLIC exchanged Elbel Construction's outstanding note for real estate two days prior to the end of CLIC's fiscal year (October 31, 1958). This property was in turn sold to appellant's Elbel Enterprises for $200,000 profit. CLIC's mortgage servicing business was then sold to Elbel's Acceptance Corporation for a net profit of $285,000. These transactions purported to create retained earnings of $50,926.36 and a profit of $27,285.45 for the year. At this time two-thirds of CLIC's 6 million dollars in assets were invested in companies owned by Elbel.

During the latter part of 1958, Elbel applied to the Kansas Securities Commission for authority to sell $2,500,000 of investment certificates. The Commission authorized the issuance of an additional $50,000 of certificates and requested a consolidated audit of all appellant's companies before it would authorize the requested amount. In an effort to comply with this request, appellant hired an accounting firm to bring the books of all of his companies up to date and to perform a consolidated audit. In March the accounting firm presented a preliminary financial statement indicating that Elbel Enterprises, the holding company for appellant's interests, had a deficit of $1,342,000 and that Elbel Construction Company, CLIC's principal debtor had a $702,000 deficit. A dispute arose between the auditors, Elbel, and his financial advisers over the accounting methods used in arriving at the reported deficiencies. Though the record is unclear as to why the action was taken, another firm of accountants was hired to complete the work.

In this state of affairs and in April, 1959, Elbel wrote to a CLIC vice president advising him that, "At a Board of Directors' meeting, it was unanimously voted upon by all present to increase the interest rate from 4% to 4½% per annum, retroactive to January 1, 1959. * * * This new increase in interest rate is made possible through sound loans, investments, careful management and the building of ample capital funds and is in line with our company's policy of paying our customers the best possible rate at all times." This letter was reprinted in newspaper advertisements and later used as material for radio announcements.

Contemporaneous with the foregoing representations, ASLA hired Stanton, Elbel's partner in another corporate venture, to purchase and complete all of appellant's construction projects on which ASLA had loaned money. Lengthy negotiations resulted in a three party June, 1959, agreement among Elbel, ASLA and Stanton. By the terms of this agreement, Stanton acquired Elbel's interest in other companies they owned jointly. Elbel and CLIC were to be released from liability for the funds that ASLA had advanced to Elbel's construction companies through CLIC. All Elbel intercompany debts of both the purchased and retained companies were to be wiped out except those owing CLIC. Thus, the companies taken over by Stanton owed CLIC approximately $900,000. Elbel's retained companies still owed CLIC $900,000. Six days later, ASLA was placed in involuntary receivership.

News of ASLA's receivership and its effect on CLIC's line of credit did not immediately reach the public because of a newspaper strike. When the papers

364 F.2d 131
carried the news and many investors attempted to liquidate their CLIC investment certificates, CLIC continued to require thirty days notice for withdrawals, advertise, accept deposits and otherwise continue business as usual, even though it lacked the funds necessary to repurchase the investment certificates. However, two weeks later, Elbel filed a Chapter X bankruptcy petition in federal court for CLIC

Elbel and his attorney negotiated with he receiver of ASLA and Stanton in an effort to secure the performance of the same agreement which they felt would save CLIC from financial ruin. When these efforts failed, Elbel's further negotiations with ASLA resulted in an April, 1960, agreement in which CLIC received approximately $752,000 in assets. These asset were subsequently sold by Elbel to Drewerys Limited netting CLIC approximately $550,000.

To summarize, the evidence indicates that after acquiring control of CLIC, Elbel created a questionable financial statement by trading off some of CLIC's assets for promissory notes and by the shifting of real estate at a unilaterally determined value between CLIC and Elbel controlled companies. On the basis of this financial statement which Elbel's accountant refused to certify because of his inability to confirm the values of the property transferred and the abnormality of the transactions, appellant then paid CLIC's investors their usual 4% dividend. In this setting Elbel pressed his demands for authority to issue additional certificates and at the insistance of the Kansas Security Commission hired an accounting firm to bring the books of CLIC and all of his other companies up-to-date and to perform a consolidated audit. On receipt of an unfavorable preliminary report, he suppressed the report, discharged the accounting firm and hired another firm to complete the audit. Despite this report indicating the financial instability of Elbel Construction (one of CLIC's principal debtors) and his admitted lack of knowledge regarding CLIC's true financial condition, Elbel, without the knowledge or approval of CLIC's Board of Directors, increased CLIC's interest rate to 4½% not only prospectively but retroactively to the first of the year. Under Elbel's direction, news of this action was immediately disseminated to the general public and specifically CLIC's investors, representing that "Safeguarding your investment is a very important part of our business. We know CLIC is succeeding in that objective through secured loans, investments, careful management and the building of ample capital funds."

After word of ASLA's bankruptcy caused a run on CLIC late in June, Elbel testified that he considered putting CLIC in receivership but was dissuaded from doing so by his attorney on the vain hope that the June agreement would be carried out. Despite this knowledge, Elbel continued operating CLIC's business as usual and in fact paid the July 1 dividend and sent a letter to all investors telling them the increased interest rate was credited to their account and reiterating that "We know CLIC is succeeding in that objective through secured loans, investments, careful management, and the building of ample capital funds." The letter then recommended that the investor add to his account every month.

In sum the jury was instructed that as used in each count of the indictment the term "willfully and knowingly" meant acts done with an evil motive or bad purpose either to disobey or disregard the law; that fraudulent intent is an essential ingredient of the offenses charged; that good faith...

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59 practice notes
  • United States v. Gerhart, Cr. A. No. 513 (Beckley)
    • United States
    • United States District Courts. 4th Circuit. Southern District of West Virginia
    • October 1, 1967
    ...were articles which if introduced against him as evidence would support the Government's case. This is not enough. Elbel v. United States, 364 F.2d 127 (10th Cir. Insufficiency of the evidence to support the conviction is also claimed. Deficiencies in several specific areas are asserted. Th......
  • United States v. Gutierrez, No. CR 15-3955 JB
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • May 31, 2018
    ...purpose is to clearly instruct the jury on the law. See United States v. Assi, 748 F.2d 62, 65 (2d Cir. 1984); Elbel v. United States, 364 F.2d 127, 134 (10th Cir. 1966); 2A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 485, at 438 (4th Ed. 2010). This princip......
  • U.S. v. Mikutowicz, No. 02-2469.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • April 22, 2004
    ...sequence ... [so that] the jury [can] understand the issues and intelligently apply the law." Id. (quoting Elbel v. United States, 364 F.2d 127, 134 (10th Cir.1966)). It is common in tax crime prosecutions for the court to instruct the jury on the meaning of tax law terms implicated by......
  • United States v. Continental Group, Inc., Crim. No. 76-514.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • July 20, 1978
    ...and in the common speech of men if the jury is to understand the issues and intelligently apply the law." Elbel v. United States, 364 F.2d 127, 134 (10th Cir. 1966), cert. denied, 385 U.S. 1014, 87 S.Ct. 726, 17 L.Ed.2d 550 (1967). It is also well settled that "a defendant in a cr......
  • Request a trial to view additional results
59 cases
  • United States v. Gerhart, Cr. A. No. 513 (Beckley)
    • United States
    • United States District Courts. 4th Circuit. Southern District of West Virginia
    • October 1, 1967
    ...were articles which if introduced against him as evidence would support the Government's case. This is not enough. Elbel v. United States, 364 F.2d 127 (10th Cir. Insufficiency of the evidence to support the conviction is also claimed. Deficiencies in several specific areas are asserted. Th......
  • United States v. Gutierrez, No. CR 15-3955 JB
    • United States
    • United States District Courts. 10th Circuit. District of New Mexico
    • May 31, 2018
    ...purpose is to clearly instruct the jury on the law. See United States v. Assi, 748 F.2d 62, 65 (2d Cir. 1984); Elbel v. United States, 364 F.2d 127, 134 (10th Cir. 1966); 2A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 485, at 438 (4th Ed. 2010). This princip......
  • U.S. v. Mikutowicz, No. 02-2469.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • April 22, 2004
    ...sequence ... [so that] the jury [can] understand the issues and intelligently apply the law." Id. (quoting Elbel v. United States, 364 F.2d 127, 134 (10th Cir.1966)). It is common in tax crime prosecutions for the court to instruct the jury on the meaning of tax law terms implicated by......
  • United States v. Continental Group, Inc., Crim. No. 76-514.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • July 20, 1978
    ...and in the common speech of men if the jury is to understand the issues and intelligently apply the law." Elbel v. United States, 364 F.2d 127, 134 (10th Cir. 1966), cert. denied, 385 U.S. 1014, 87 S.Ct. 726, 17 L.Ed.2d 550 (1967). It is also well settled that "a defendant in a cr......
  • Request a trial to view additional results

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