Greenhill v. United States, 18439.

• Decision Date: 27 March 1962
• Docket Number: No. 18439.,18439.
• Parties: Kalman GREENHILL, Frank Proctor, Jr., a/k/a Francis E. Proctor, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

298 F.2d 405 (1962)

Kalman GREENHILL, Frank Proctor, Jr., a/k/a Francis E. Proctor, Appellants, v. UNITED STATES of America, Appellee.

No. 18439.

United States Court of Appeals Fifth Circuit.

January 25, 1962.

Rehearing Denied March 27, 1962.

Karl B. Friedman, Birmingham, Ala., Dudley Yoedicke, Leon D. Hubert, Jr., Hubert, Baldwin & O'Hara, New Orleans, La., Louise S. Korns, New Orleans, La., on the brief, for appellants.

W. L. Longshore, Macon L. Weaver, U. S. Attys., M. L. Tanner, Asst. U. S. Atty., Birmingham, Ala., David B. Bliss, Atty., Securities and Exchange Commission, Washington, D. C., for appellee.

Before RIVES, CAMERON, and BELL, Circuit Judges.

GRIFFIN B. BELL, Circuit Judge.

This consolidated appeal comes to us on a record of 1,999 pages together with more than 300 exhibits. It is from final judgments and sentences imposed upon a jury verdict finding appellants guilty on nine counts of using the mail to defraud¹ and ten counts of fraud in the sale of securities by the use of the mails² in that they willfully devised a scheme to defraud certain persons named in the indictment by inducing them through false representations to buy subordinated debenture bonds or short term notes issued by Alabama Acceptance Corporation. Appellant Greenhill was sentenced to three years and Appellant Proctor to two years in the Federal Penitentiary.

Despite the mass of testimony, the multitudinous exhibits and the unusual length of the trial, this story can be simply told. In March of 1956, John Murray, who was jointly indicted with appellants and who entered a plea of nolo contendre on the day trial commenced³ acquired control of Alabama Acceptance Corporation, an Alabama corporation with its principal place of business in Birmingham by buying for $12,500 in notes all of the outstanding stock of Beech Investment Company, Inc., an Alabama corporation which owned fifty one percent of its capital stock. Murray became chief executive officer of Alabama Acceptance, an automobile finance company which was losing money when he bought it.⁴

John Murray was advised by Milton Linn of Miami, Florida to get in touch with Appellant Greenhill, a New York attorney but more recently doing financial consulting, about the financial problems of Alabama Acceptance Corporation. Murray made an appointment to see Greenhill at his two room office located at 1407 Broadway in New York on the condition that he pay Greenhill a retainer fee of $1,000. Greenhill later borrowed $5,500 from Alabama Acceptance Corporation to pay Mr. Linn as a brokerage fee for referring Murray to him. At any rate, upon payment of the $1,000 retainer fee Greenhill conferred with Murray and his accountant Williams for some hours, advising that he could not help them in the automobile financing business but suggested that Alabama Acceptance Corporation undertake a program of acquisition of other companies. Greenhill offered his assistance in such a program and that of his associate, Appellant Proctor, an engineer whose experience had been mainly in sales; Proctor to act as an industrial broker in finding and evaluating businesses for sale and Greenhill to negotiate the terms, conditions and financing of the transactions.

Here it should be noted that Greenhill and Proctor had for some months been associated under the style of Frank Proctor & Associates as industrial brokers. Their motivation was to earn finders fees by putting those who wanted to sell in touch with those who wished to purchase with negotiation then to be done by the would-be sellers and purchasers. In short, they knew of industries for sale and could find others and Alabama Acceptance Corporation was to become a captive purchaser.

Proctor occupied the extra office in the suite of Greenhill and he also met for a short time with Murray and Williams. This was on or about June 19, 1956. A few days later Mr. Greenhill met with John Murray in Birmingham to discuss the matter further. The long and the short of this meeting was that it was agreed that Greenhill and Proctor would undertake an acquisition program for Alabama Acceptance on conditions to be agreed upon. Greenhill while in Birmingham on this trip borrowed $3,000 from Alabama Acceptance Corporation.

In July 1956 Greenhill and Proctor chartered Frank Proctor & Associates, a New York corporation. Greenhill was never an officer of Alabama Acceptance, Frank Proctor & Associates or any of the other related corporations. Proctor was president of Associates and became a director of Alabama Acceptance. Greenhill stated to Murray at the first meeting in New York that he could not occupy any foreground position in any undertaking because of, among other reasons, his tax difficulties and previous bankruptcy.

Murray, Proctor, and Greenhill as individuals, Roland Industries, Inc., a corporation owned by Mr. and Mrs. Greenhill, and Frank Proctor & Associates entered into an agreement during the same month to the effect that Alabama Acceptance Corporation would enter into an acquisition program whereunder companies would be submitted to it for purchase by Greenhill, Proctor, Roland Industries, and Associates which program was to last for three years. A commission equal to five percent of the purchase price was to be paid to the person or firm submitting the proposal at the time title to the stock being purchased passed to Alabama Acceptance Corporation. Thereafter this agreement was modified to the extent that Alabama Acceptance engaged the services of Frank Proctor & Associates as financial and management consultants in connection with the corporations and properties acquired and to be acquired and agreed to pay Associates for these services a sum equal to five percent of the total purchase price plus $100 per week from each subsidiary which it controlled, plus a sum equal to twenty five percent of net profits of Alabama Acceptance before taxes. Then in 1957 but retroactive to June 18, 1956, Murray, Proctor, and Greenhill entered into an agreement in which it was recited that Beech Investment Company owned control of Alabama Acceptance Corporation and that Murray owned fifty one percent of the stock of Beech and that Frank Proctor & Associates had an agreement to purchase the remaining outstanding forty nine percent of the stock of Beech and that they had formed various other corporations since June 18, 1956 and others would be formed in the future. They then agreed that with the exception of Alabama Acceptance and Beech the three of them would own one third each of every other corporation organized including Frank Proctor & Associates, Inc., a New York corporation; Frank Proctor & Associates, Inc., a Florida corporation; Alabama Capital Corporation, a New York corporation; Central Capital Corporation, a Florida corporation; and Allen Capital Corporation, a New York corporation. They agreed also that in regard of these holdings and all future holdings all increments, dividends, additional issues or incomes, or income or property received by any of the companies or by either of the parties as commissions or broker fees or any other compensation would be divided equally amongst the three, and all of this was to be true notwithstanding the manner in which the holdings might be reflected on the records of any of the companies. Lastly, in this agreement it was specified that each would be employed for a period of ten years from June 18, 1956 to devote full time and attention to the interest of all companies covered in the agreement with Murray and Proctor to receive $25,000 per year and Greenhill to receive $50,000.

Appellants, in cooperation with Murray, then set out on an acquisition program. The pattern of acquisition was a small down payment and a large mortgage whether acquiring stock or assets, with emphasis on assets, and with little or no regard being given to the profit record of the companies being acquired. Only one subsidiary prospered. Companies were acquired publishing small newspapers, operating printing plants, and manufacturing water heaters, radar parts, and parts for aircraft and missiles as well as electric fans. Many companies were investigated and not purchased and in three instances options were purchased but final acquisition did not take place. In one of these Frank Proctor & Associates collected a fee of $25,000 which was never repaid to Alabama Acceptance although the refund was carried on the books of Alabama Acceptance as an account receivable.

The key to the arrangement or plan contrived by appellants and Murray was profits to Frank Proctor & Associates which was in turn paid out to appellants in salaries, expense accounts, and loans. These came through the medium of the agreed finders or brokerage and management fees. The contract as to management fees was disregarded. For example, one subsidiary was paying Associates on the basis of $15,000 per annum.

In the fiscal year ending June 30, 1957, Associates had an income of approximately $96,000, virtually all of which came from Alabama Acceptance in connection with the acquisition program. Proctor was paid $24,500 and Greenhill $53,000 in salary out of Associates for this period. This did not include loans to Greenhill from Alabama Acceptance or Associates. Loans also were necessarily made to Associates so that salaries and expenses could be paid as Associates, according to its federal income tax returns had liabilities exceeding assets by more than $30,000 as of the end of the fiscal year. The capital account was only $1,500 and losses were over $30,000. Greenhill was not an officer of Associates but was working under the salary agreement with Murray and Proctor. Proctor was President of Associates.

Greenhill and Proctor prospered to the extent that they moved out of the small offices on Broadway to Madison Avenue where they occupied a spacious suite complete with reception room and conference room. Greenhill was spending a substantial amount of time at the Eden Roc...