Farrell v. United States

• Decision Date: 17 September 1963
• Docket Number: No. 18241.,18241.
• Citation: 321 F.2d 409
• Parties: David FARRELL and Oliver J. Farrell Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

321 F.2d 409 (1963)

David FARRELL and Oliver J. Farrell Appellants, v. UNITED STATES of America, Appellee.

No. 18241.

United States Court of Appeals Ninth Circuit.

August 7, 1963.

Rehearing Denied September 17, 1963.

COPYRIGHT MATERIAL OMITTED

James A. Poore and Robert G. Clinnin, Los Angeles, Cal., for appellant David Farrell.

Gould & Aronson and Paul Augustine, Jr., Los Angeles, Cal., for appellant Oliver J. Farrell.

Francis C. Whelan, U. S. Atty., Thomas R. Sheridan, Asst. U. S. Atty., Chief, Criminal Section, Edward M. Medvene, Sp. Asst. to U. S. Atty., and J. Brin Schulman, Asst. U. S. Atty., Los Angeles, Cal., for appellee.

Before JERTBERG and BROWNING, Circuit Judges and BURKE, District Judge.

JERTBERG, Circuit Judge.

Following trial to a jury, the appellants David Farrell and Oliver J. Farrell brothers, were convicted on thirty-two counts of a thirty-four count indictment. Upon the close of the government's case, the District Court dismissed Counts 3 and 33 on motion of the government.

Counts 1, 2, and 4 through 17, inclusive, 16 counts charge offenses under Section 17(a) (1) of the Securities Act of 1933 (15 U.S.C. § 77q(a) (1)), which in pertinent part provides:

"(a) It shall be unlawful for any person in the offer or 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 * * *"

Counts 18 through 32, inclusive, 16 counts charge offenses under the Mail Fraud Statute (18 U.S.C. § 1341), which in pertinent part provides:

"Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, * * * for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Post Office Department, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined not more than $1,000 or imprisoned not more than five years, or both."

Count 34 charges a conspiracy to violate the Securities Act and the Mail Fraud Statute in violation of 18 U.S.C. § 371, which in pertinent part provides:

"If two or more persons conspire either to commit any offense against the United States, * * * and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $10,000 or imprisoned not more than five years, or both. * * *"

The first count alleges that appellants and one Stanley C. Marks acquitted by jury verdict on all counts, devised a scheme to defraud investors in the sale of securities investment contracts, promissory notes, and evidence of indebtedness issued by Trust Deed Mortgage Exchange (TD&ME), a California corporation, Los Angeles Trust Deed and Mortgage Exchange (LATD&ME), a California corporation, Trust Deed and Mortgage Markets (TD&MM) a California corporation, and Colorado Trust Deed and Mortgage Markets (CTD&MM), a Colorado corporation, in connection with an investment plan or program designated by appellants as a secured 10% earnings program, secured 10% earnings reinvestment program and secured 10% earning accounts, based on the sale to investors of discounted trust deeds and mortgages covering units of real estate situated within the State of California. The first count describes the scheme to defraud, in detail.

Counts 2, and 4 to 17 inclusive, allege a separate violation of the quoted section of the Securities Act and incorporate by reference the allegations made in Count 1.

Counts 18 to 32, inclusive, incorporate the statement of the scheme to defraud as set forth in Count 1, except that the instruments through which the scheme was accomplished are not described as securities.

The 34th Count alleges and incorporates by reference the allegations made in Count 1 as constituting elements of conspiracy, and sets forth numerous other overt acts accomplished in furtherance of the conspiracy.

The case comes before us on a large record. The trial consumed over 27 trial days; over 2000 documents were received in evidence, and the reporter's transcript of testimony exceeds 4400 pages.

The appellant, David Farrell, did not specify as error, nor does he assert as error, the insufficiency of the evidence to sustain the jury verdicts returned against him "simply in recognition of the limited role a reviewing Court has in such a situation." Opening Brief, p. 13. In this connection this appellant states: "While it is true it cannot be said as a matter of law there was no evidence nor inference drawable therefrom supporting the verdict, the evidence was weak and attenuated on the one real issue involved in the whole long trial — intent." ibid. pp. 13-14. Furthermore this appellant states: "Actually the trial of this case was remarkable in several ways, the most noteworthy of such is the astounding fact that there really is not much conflict as to the evidence. The operations and activities of TD&ME, LATD&ME and appellant from January, 1958 to June 8, 1960 and what was or was not said and done were really basically agreed to. An agreement, however, which carries with it no concession that a scheme or conspiracy to defraud ever actually existed. The few areas of dispute and how, if at all, these areas were resolved by the jury is not really opened to review." ibid. p. 16. This appellant's assignment of errors is as follows:

"I. The Court erred in its instruction on the issue of security under The Security Act of 1933 on Counts One, Two, Four through Seventeen.

"II. The Court erred in allowing introduction of any evidence of the existence of the prior civil action or the issues involved therein and its determination. There was also error in the phrasing of the Court summary and in the Court\'s failing to instruct at that time the difference between the burdens of proof in the two actions.

"III. The Court erred in allowing any testimony of losses by customer witnesses in that such evidence was (a) immaterial and irrelevant to the crimes alleged and (b) violative of the Court\'s own ruling in reference to events occurring after June 7, 1960.

"IV. The Court erred in admitting Exhibit 6003 in evidence."

The appellant, Oliver J. Farrell, adopts the assignment of errors made by his co-appellant, and in addition assigns as error solely on his own behalf, insufficiency of the evidence "on all counts as a matter of law to sustain the judgment of conviction on all counts." This appellant concedes that "in the prosecution of this case the government presented an extremely thorough case, establishing how the Los Angeles Trust Deed and Mortgage Exchange had engaged in a course of conduct which violated the Securities Act of 1933 and engaged in Mail Fraud."

We will first consider the separate assignment of error of the appellant, Oliver J. Farrell, whose basic contention under this assignment is "that the evidence is insufficient to impute to him any knowledge of any fraudulent scheme or any intent to defraud. His role as only sales manager in this highly departmentalized operation is thoroughly demonstrated throughout the record, as is the fact that David Farrell made all of the policy decisions, directed the operations of the company, and caused huge profits to be made by his solely owned corporations which dealt with LATD&ME." Opening Brief, p. 12.

Thus, there is presented to us a narrow issue under this assignment.

The record discloses that this appellant was vice-president, secretary, a director and the sales manager of LATD&ME from the inception of the Secured 10% Earnings Program in late 1957 until June 1, 1960. He was also vice-president and a director of TD&MM. His compensation as sales manager for that period exceeded $250,000.00. As sales manager he employed, trained and supervised all local LATD&ME salesmen, and conducted weekly meetings throughout California, instructing salesmen in effective sales techniques. All branch managers took their orders from him and were directly responsible to him. He edited literature that was mailed out to investors. He furnished to investors false and misleading information concerning the liquidation policy of LATD&ME. He instructed the regional sales managers that the salesmen, in selling the 10% Earnings Programs, should resort to sham references in reassuring investors that their investments could be quickly liquidated. He assisted in drafting brochures sent to salesmen and investors which falsely represented the value and stability of subordinate trust deeds that were created against undeveloped subdivisions or vacant trust of land. He instructed salesmen to represent that funds of LATD&ME were being used to purchase trust deeds for inventory, whereas, the funds of investors were being used for that purpose. He instructed salesmen to "play down" the issues and scope of litigation hereafter mentioned, initiated by the Securities & Exchange Commission against him, the corporations above mentioned, his co-appellant and others. He had some knowledge that his co-appellant enjoyed profits under some participation agreements with subdividers on land on which investors purchased subordinated trust deeds. He instructed salesmen to represent to investors that the subdividers who created trust deeds for LATD&ME against vacant tracts of land had made large cash investments in the subdivision, whereas, in some instances no investment had been made by the subdivider.

From the foregoing summary, and other evidence in the record which we have not mentioned, and upon inferences which might reasonably be...