Landay v. United States

• Decision Date: 14 December 1939
• Docket Number: No. 7873-7877.,7873-7877.
• Citation: 108 F.2d 698
• Parties: LANDAY v. UNITED STATES, and four other cases.
• Court: U.S. Court of Appeals — Sixth Circuit

108 F.2d 698 (1939)

LANDAY v. UNITED STATES, and four other cases.

Nos. 7873-7877.

Circuit Court of Appeals, Sixth Circuit.

December 14, 1939.

COPYRIGHT MATERIAL OMITTED

Edward N. Barnard, of Detroit, Mich. (William G. Comb, of Detroit, Mich., on the brief), for appellants.

J. Thomas Smith, of Detroit, Mich. (John C. Lehr, of Detroit, Mich., Welly K. Hopkins, William W. Barron, J. Albert Woll, and Wm. J. Connor, all of Washington, D. C., Paul M. Plunkett, of Chicago, Ill., Chester T. Lane, of Washington, D. C., and Paul R. Rowen, of Boston, Mass., on the brief), for appellee.

Before HICKS, ALLEN, and ARANT, Circuit Judges.

ALLEN, Circuit Judge.

Appellants were convicted under a joint indictment which embraced seventeen counts, charging violations of the Mail Fraud Statute and the Securities Act. The first five counts charged violations of Title 18 U.S.C. § 338, 18 U.S.C.A. § 338; the next four counts charged violations of Title 15 U.S.C. § 77q(a) (1), 15 U.S.C.A. § 77q(a) (1); the next four counts charged violations of Title 15, § 77q(a) (2); the next three counts charged violations of Title 15, § 77e(a) (1), and the last count charged a conspiracy to violate Title 18, § 338, and Title 15, § 77q(a) (1) and (a) (2).¹

The court withdrew from the consideration of the jury counts 1, 2, 6, 7, 11, 12, and 13. Appellants were convicted under the remaining ten counts. Landay and Attix were each sentenced to five years imprisonment, Lane to four years, Brown to three years, and Lafata to two years. In addition, each appellant was fined $10,000. The sentence in each case was general.

The gist of the charge was that the appellants devised and executed a scheme and artifice to defraud and to obtain money and property by means of false and fraudulent representations and promises from R. Cummins & Company, Inc., a Michigan corporation formed, dominated and controlled by appellants, the stock of which was intended to be and was sold to the public, including various persons named in the indictment by means of false and fraudulent pretenses, representations and promises. It was charged in substance that the mails were used to send receipts for payments for stock, for delivery of stock certificates to the purchasers, and to send circulars and other information about the company to prospective purchasers of stock in the company, in violation of Title 18 U. S.C. § 338, 18 U.S.C.A. § 338, and Title 15 U.S.C. § 77q, 15 U.S.C.A. § 77q. The same use of the mails was also charged to constitute a violation of Title 15 U.S.C. § 77e, 15 U.S.C.A. § 77e, in that no registration statement was in effect, as provided for by § 77f and required under § 77e. It was an integral part of the scheme that appellants should cause shares of stock of R. Cummins & Company to be issued to themselves without consideration, and should thereby secure for themselves secret profits from the transactions described in the indictment. A motion for directed verdict was made on behalf of appellants, and correctly overruled. The record establishes the following facts by substantial testimony:

Lane, Landay, Brown and Lafata were interested in obtaining the Malta-Vita plant, owned by the Advance-Rumley Corporation, at Battle Creek, Michigan, to use as a distillery. The plant consisted of four buildings some forty years old, situated on four and a half acres of land. A sixty-day option to purchase the plant for $35,000 had been given by the owner to Brown. Jack K. Burns, an architect, had examined the plant and reported that it could be used for distillery purposes. Landay induced Burns to form a partnership with Lane for the purpose of applying for a distillery permit from the Federal Alcohol Control Administration, to be used in operation of the plant. Landay gave as a reason for inducing an outsider to come into the combination that his own name "wouldn't be so good in the public's eye, and Mr. Lafata probably isn't much better than I am."

On October 17, 1933, Landay, Lane, Brown and Lafata executed an agreement with reference to this option, which stated that Brown was acting as trustee for the group, and said it "is the essence of this agreement that when and as if the corporation is formed, that all stock obtained by Leonard E. Brown, Trustee, for any property, cash, services and promotion, shall go into a pool for the benefit of Leonard E. Brown, Frank R. Lane, Sam Lafata and H. H. Landay, who are to share and share alike." It was agreed that all stock, obtained from "various sources" by and for the syndicate, should go into the pool for the benefit of the signers. The agreement specifically covered "transactions, deals or combinations of deals." This written agreement was followed by two written contracts signed by all of the appellants. In the second contract Burns and Attix were also signers, having then been made members of the syndicate. Burns was not a party to the third contract, having at that time withdrawn from the syndicate. These contracts reaffirmed the essential terms that the stock issued in the names of the members of the group should be held in the pool for the benefit of all and should be voted as a block.

Brown then entered into a contract to sell the Malta-Vita plant to the Burns and Lane partnership, which did business as the Old Colonial Distillery Company. The purchase price to be paid was $40,000 and the delivery of 244,791 shares of common stock of one dollar par value of a corporation to be organized. The land was later sold by Advance-Rumley Corporation to Brown as trustee for the syndicate for $35,000. On April 18, 1934, Burns and Lane organized the corporation as the R. Cummins & Company, Inc., with 1,250,000 shares of common stock of one dollar par value. The land contract between Brown and the partnership was assigned to the corporation, which paid $35,000 cash to the Advance-Rumley Corporation, and issued 244,791 shares of its stock to Brown. These shares were held in the pool for the benefit of the group.

Later the corporation issued over 15,000 shares to other members of the group. Burns was given 23,127 additional shares for architectural work performed. All of this stock was turned over to the syndicate.

An application was made to the Michigan Securities Commission on April 18, 1934, for validation of 650,000 shares of the corporation stock for sale. It was represented to the commission at that time that the distillery permit was then being turned over to the corporation, although on its face it was not transferable. At one of the hearings before the commission, Burns was asked whether Brown was interested in the corporation or in the promotion of the group, and he answered no. Landay and Lane were present when this statement was made. Brown represented at a later hearing before the commission that he had nothing to do with the deal; that no part of the stock was to go to Burns or to any one in the group, and that he, Brown, had bought the plant individually.

Offices were opened in Detroit for the purpose of selling the stock, Landay being in charge. Burns, who had been made president of the corporation, sold his interest in the group in September, 1934, and withdrew from the combination entirely, stating that he did not approve of the general conduct of affairs. The sale of stock continued, the mails being used extensively in the delivery of stock, the mailing of circular letters of advertising, and correspondence with customers actual and prospective.

The fraudulent transactions fall into two main classifications:

(1) Issuance of stock to individuals and corporations, which was afterwards turned back to appellants and was resold to the general public. The corporation issued stock as purported compensation to individuals and corporations, large amounts of which were received back into the pool. All of the stock turned back was shown to have been received by one of the appellants. Substantial amounts of the stock are shown to have been resold at approximately two dollars per share, although the Michigan Securities Commission had given permission to sell at one dollar per share. The books of the Cummins Company offered in evidence contain no record of the receipt of any of this stock. The following transactions all fall within the period of the charged conspiracy:

Conrad Keller & Company was awarded a contract for alteration of the Malta-Vita plant. $10,432.26 was charged for the actual work performed. The corporation issued 27,667 shares of stock ostensibly in payment for this work. 26,025 of these shares were endorsed and returned to Landay, but never listed upon the corporate books. In addition, more than $7,500 cash was paid to Conrad Keller & Company by the corporation.

Landay purchased certain used tanks from Mitchell for $1,000, paid by check of the Cummins Company. 6,945 shares of common stock were issued to "L. E. Brown — Agent," as ostensible payment for these tanks.

The Pyne Company contracted to install distillery equipment for the corporation for $15,026. The amount was later reduced by $565. On the journal of the corporation the amount is listed at $18,026.

Thirteen storage tanks were sold to the corporation by the H. J. Heinz Company at a price of $1,037.50. The corporation paid this amount by check. Stock was issued to Brown, as agent, in the amount of 12,610 shares, which included one item of $5,937.50 in payment for these tanks.

Matt Corcoran, a coppersmith of Louisville, contracted to install stills in the plant for some $49,000. Landay and Attix suggested that Corcoran raise the contract price to $53,000, and issued 4,000 shares of stock to him for which Corcoran gave no service and no consideration. He immediately endorsed the stock and returned it to Landay.

The Kelsey-Hayes Wheel Company negotiated with Landay for the sale of a boiler plant for $6,500. Landay had the bill of sale made out to the Majestic Engineering Company, which was an assumed name for one of Landay's agents....