Kaufman v. United States

• Citation: 163 F.2d 404
• Decision Date: 14 July 1947
• Docket Number: No. 9910.,9910.
• Parties: KAUFMAN v. UNITED STATES.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

163 F.2d 404 (1947)

KAUFMAN v. UNITED STATES.

No. 9910.

Circuit Court of Appeals, Sixth Circuit.

July 14, 1947.

Arthur W. A. Cowan, of Philadelphia, Pa., for appellant.

W. Victor Rodin, of Philadelphia, Pa. (John C. Lehr and Frank X. Norris, both of Detroit, Mich., and W. Victor Rodin, of Philadelphia, Pa., on the brief; Milton P. Kroll and Irving M. Pollack, both of Philadelphia, Pa., of counsel), for appellee.

Before ALLEN, MARTIN, and MILLER, Circuit Judges.

ALLEN, Circuit Judge.

Appellant was charged in two indictments jointly with Maurice Niditch, Samuel Lewis and others, including certain residents of Canada, with using the mails in furtherance of a scheme to defraud and with conspiracy to commit the same offenses. Indictment No. 26262 charged the use of the mails to sell and deliver stock of the Devon Gold Mines, Ltd., a Canadian corporation (hereinafter called Devon), without registration, in violation of sections 5(a)(1) and (2), as amended of the Securities Act of 1933, 15 U.S.C.A. § 77e (a) (1, 2), and for conspiring to violate these sections. Indictment No. 26263 charged violations of the anti-fraud provisions of the Securities and Exchange Act of 1933, section 17(a) (1) and (2), as amended, 15 U.S. C.A § 77q(a) (1, 2), and the Mail Fraud Statute, 18 U.S.C.A. § 338, and conspiring to violate these statutes. Counts 2 and 6 of indictment No. 26262 and count 5 of indictment No. 26263 were withdrawn from the consideration of the jury. The Canadian defendants not being within the reach of process, as the offenses charged are not extraditable, the case proceeded against Niditch, Lewis, and the appellant. Lewis pleaded guilty to the third count of indictment No. 26262 and the fourth count of indictment No. 26263. The jury found appellant and Niditch guilty on the eleven counts of both indictments submitted to it. The District Court sentenced appellant and Niditch on substantive counts 1 and 3 of the second indictment only. Niditch was sentenced to imprisonment for five years on each count, to run consecutively, and to pay a fine of $2,500 on each count. Appellant was sentenced to imprisonment for three and a half years on each count, to run consecutively, and to pay a fine of $500 on each count.

The conspiracy count under each indictment alleged continuation of the conspiracy from October, 1938, through April, 1941. The scheme alleged in the two indictments was to effect the sale of Devon stock to holders of stock in the Coulson Consolidated Gold Mines, Ltd., a Canadian corporation (hereinafter called Coulson), all of whose assets had been acquired by Devon in 1937. During all the period in question Devon was in financial straits. The Ontario Securities Commission had refused permission on November 27, 1939, for the sale of 173,000 shares of Devon stock unless Devon should arrange with its creditors for an extension of time for the payment of its debts. This extension, and two similar extensions running until April 30, 1941, were arranged. On June 16, 1941, Devon filed an assignment in bankruptcy.

In November, 1939, E. M. McLean & Company (hereinafter called McLean), a concern doing a brokerage business in Toronto, Canada, secured through Niditch an exclusive option to sell Devon shares. In July, 1939, Niditch had been made general manager of McLean, with entire control over its business. Under the contract he was to receive 85% of the net profits of the business.

Under the option between McLean and Devon, 450,000 shares of Devon capital stock were to be available for McLean in blocks of 150,000 each, at prices of 12½ cents, 15 cents, and 17 cents per share respectively. In addition to taking up this stock, under the option, McLean purchased on the street 24,050 Devon shares at prices ranging from 5¼ to 8 cents per share, purchased from private individuals 225,000 Devon shares at about 12 2/3 cents a share, and also sold to the public 25,000 shares of bonus Devon stock which it received free of charge from Devon. These shares it offered to the 1,800 stockholders of Coulson residing in the United States, representing them as being an especial bargain at 25 cents and 30 cents per share.

It was the theory of the Government, evidently adopted by the jury, that appellant was the star salesman for Niditch and McLean. Appellant's defense was that while during the period of the option, from January, 1940, to the end of March, 1940, and subsequently, he was in Toronto and frequently called on Niditch, he never discussed with Niditch the sale of the Devon stock, nor in any manner took part in the floating of these stocks. He was identified by a number of the 19 investors from various parts of the United States who testified to having bought the Devon stock from him because of the high pressure salesmanship and the false representations hereinafter described. But appellant claimed that this was a case of mistaken identity and that he had nothing to do with the transactions. The record shows, however, that under the name of Russell, Spicer or Spencer, appellant called upon a number of these investors, making glowing statements concerning the value of Devon stock. He represented that the stock would soon be listed on the Toronto Stock Exchange; that Devon would be a second Noranda (a Canadian gold mine which paid over $8,000,000 dividends annually in 1939 and 1940); that a half million dollars' worth of ore had been mined, and was ready for milling; that the money secured from the sale of the stock was to be put back into the development of the mine. Within a day or two after appellant made his first call the investor prospect would receive a long-distance telephone call from Toronto from a person representing himself to be McLean, of McLean & Company, who urged the purchase of the Devon stock. These calls would be repeated until the prospect invested, or positively refused to buy. It was shown that Niditch personally made these telephone calls; that McLean's telephone bill during this period was over $4,000, and that the outgoing calls of McLean did not go through the switch board, but were handled privately from Niditch's office.

While appellant never used his own name, his identification by the witnesses, some of whom saw him on three or four occasions, is very definite.

Mrs. Ethel Milford saw appellant on three different occasions, and made three successive purchases. In making these sales appellant used the name of Spencer. He induced Mrs. Milford to purchase an aggregate of 125,000 Devon shares, at 30 and 35 cents a share, for a total payment of $39,000. In addition to securing $7,500 cash from Mrs. Milford, appellant induced her to turn over to McLean her dividend-paying shares, including shares of American Telephone & Telegraph Company, Phelps-Dodge, Anaconda, Calumet and Hecla, Hudson Bay, and Park Utah. The misrepresentations were substantially identical with those described above, and were made at the time that Devon was insolvent. No application to list Devon on the Toronto Stock Exchange was ever made, and its bank account was almost continuously overdrawn from January to June, 1940. Only a fraction of the money paid by Mrs. Milford reached the treasury of Devon. The appellant, under the name of Spencer, had previously induced Mrs. Elizabeth B. Thaw, of Pittsburgh, to purchase 110,000 shares, which sale she had cancelled upon discovering that the appellant had falsely represented to her that Dome Mines, a prosperous Canadian company was negotiating a merger with Devon. Fearing that Mrs. Milford also might cancel one of these sales and make trouble, the appellant induced her to write a letter in her own handwriting, addressed to McLean, stating:

"This is to advise you that I have received all your literature in Devon Gold Mines, Limited, and have read same carefully and solely because of the facts contained therein, there being no other representations made to me by any of your agents, I have decided to become a substantial shareholder in this company, and am purchasing this company's shares for the long pull investment purpose and not with any intention of turning same over for quick market play."

All of the 19 investors who testified were Coulson stockholders. They had been told, as Mrs. Milford was, that they were privileged to purchase Devon stock on more favorable terms than the general public, although McLean at the same time was purchasing Devon stock on the street at prices from 5¼ to 8 cents a share and unloading it with Coulson stockholders at 25 to 30 cents a share.

It is not questioned that the United States mails were extensively used in these transactions. Moreover, the jury was warranted in finding that a conspiracy existed as charged in the indictment. The representations made by appellant to the witnesses to whom he sold Devon stock were practically identical with those made by Niditch, Lewis and Merritt to other investor witnesses. The jury was entitled to consider the cooperation of Niditch and appellant in concealing appellant's connection with the sales campaign. While appellant negotiated the two largest sales made, those to Mrs. Thaw and Mrs. Milford, no commission account was listed on the books in the name of Kaufman. There was an account in the name of Spencer, and appellant sold Mrs. Thaw and Mrs. Milford under that name. This account showed that $24,750 had been paid to Spencer, but the items making up this amount were not supported by any check payable to Spencer. This was due to Niditch's practice of using large checks payable to cash, and his failing to record the person to whom or the item for which the money was expended. Nicoll, the accountant employed by McLean to periodically inspect the books, testified that he frequently criticised this practice of Niditch, calling it a "loose system" which would not properly protect Niditch and McLean; but Niditch continued to issue checks payable to cash.

Niditch claimed not to know who Spencer was. He said...