Lowther v. United States
| Decision Date | 13 April 1972 |
| Docket Number | No. 71-1017,71-1018.,71-1017 |
| Parties | Harry Allen LOWTHER, Jr., et al., Defendants-Appellants, v. UNITED STATES of America, Plaintiff-Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
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Joseph P. Jenkins, Estes Park, Colo., for appellants, Wendell E. Lowry and Lowry Investments, Inc.
Alan H. Bucholtz, Denver, Colo., for appellant, Harry A. Lowther, Jr.
James S. Dougherty, Dept. of Justice, Washington, D. C. (James L. Treece, U. S. Atty., Milton C. Branch, Asst. U. S. Atty., Denver, Colo., Edward J. Barnes, Robert G. Clark, Craig C. Donsanto, Dept. of Justice, Washington, D. C., on the brief), for appellee.
Before SETH, HOLLOWAY and BARRETT, Circuit Judges.
Rehearing Denied in No. 71-1017 February 23, 1972.
Rehearing Denied in No. 71-1018 April 13, 1972.
The appellants were convicted by a jury of fraud in the sale of securities in violation of 15 U.S.C. § 77q(a).1 Harry A. Lowther, Jr. was sentenced to 5 years imprisonment under 18 U.S.C. § 4208(b) and Wendell E. Lowry was sentenced to 4 months, followed by 20 months probation. Lowry Investments, Inc. was fined $1,000. Carl E. Courts was found not guilty on all counts. Counts one through six involved 15 U.S.C. § 77q(a), fraud in the sale of securities, and Count seven, 18 U.S.C. § 371, involved conspiracy against the United States. Prior to trial Count seven was dismissed. Count four was dismissed after the Government had presented its case. Lowther was acquitted on Counts three and five, and Lowry and Lowry Investments were acquitted on Counts two and six. The jury did not reach a verdict on Counts two and six as to Lowther or on Counts three and five as to Lowry and Lowry Investments.2 Lowry, Lowther and Lowry Investments were convicted on Count one involving use of the mails by the appellants on or about December 15, 1965 to send a confirmation of sale to Mrs. Betty Jolkovsky of 2,500 shares of Elkton stock to employ a scheme to defraud, obtain money by means of untrue statements of material facts or to operate a fraud upon purchasers. Lowry and Lowry Investments, Inc. will be referred to as Lowry.
Lowry owned Lowry Investments, Inc. in Colorado Springs, Colorado, and specialized in penny stocks. In 1965 he gained control of three dormant mining companies, Cresson Consolidated Gold Mining and Milling Company, United Gold Mines Company, and The Elkton Company. A board of directors was formed including Lowry, but they never met; minutes were signed, however, indicating that meetings were held. Lowry kept the records of the companies. These three corporations had interlocking boards of directors. In late 1965 the Elkton Company retained El Paso Financial Corporation to serve as its financial manager; it was controlled by Lowther. The offices of Lowry and Lowther were in the same building and they conferred constantly. Resolutions were passed authorizing the sale of 1,480,233 shares of Elkton at 1/10 of a cent per share. The shares were purchased by Lowry, Lowther and their nominees. In November of 1965 Lowry made a tender offer to other Elkton shareholders to buy Elkton stock at ¼ of a cent per share net. Lowry obtained 230,000 shares in response to the offer. Lowry resigned from the board of directors of Elkton on November 9, 1965. On December 2, 1965 the remainder of Lowry's directors in Elkton resigned.
As manager of Elkton, Lowther began negotiations to purchase two companies in unrelated fields, Chemspray Corporation and Rocky Mountain Rent-A-Car Corporation. Although Elkton was unsuccessful in its dealings, Lowry and Lowther represented to the public that it was doing well. On December 4, 1965 Lowry issued one of his periodic Lowry Investments, Inc. letters to his customers in which he stated that Elkton "could prove to be the speculation of the year for 1966." Lowry offered the stock in this letter at 2 cents per share, double the price quoted in his investment letter two weeks before. The investment letter stated that Elkton was being managed by El Paso; that it had purchased 51% of Chemspray, and projected a substantial cash flow income from this acquisition; that Elkton expected to purchase Econ-O-Car Rentals, which Lowry described as "Chrysler's new entry into the national car rental business"; that a third "major" acquisition was contemplated; and that El Paso's goal for Elkton was an income of $100,000 per year.
On December 8, 1965, Lowther issued a letter to Elkton shareholders in which he told of El Paso's intention to convert Elkton into a holding company and to acquire profitable subsidiaries. Lowther listed the members of the new board of directors and their credentials. In several instances the credentials attributed to the members of the board were either inaccurate or misleading. The letter also announced the purchase of Chemspray, and described it as a "leading manufacturer of industrial cleaning equipment and chemicals", with "remarkable growth in sales and profits during the year 1965." Lowther projected gross sales for Chemspray in 1966 at $1,750,000 and profits of $250,000. Its assets were stated to be $166,377, its liabilities $12,580, and stockholders' equity $153,797. In reality Chemspray had no earnings in 1965, it had little cash and there was no basis for projecting earnings of any substantial amount in 1966.
During December of 1965 Elkton Corporation hired a public relations firm to issue press releases. It was to be paid in shares of Elkton borrowed from Lowther. The information issued was obtained from the Chairman of the Board of Directors, Hamilton Gregg II, and from Lowther. One of the news releases contained information about Chemspray which had been related in the stockholders' letter.
On December 9, 1965 the public relations firm issued a press release concerning Elkton's purchase of Rocky Mountain Rent-A-Car Corporation. Gregg and Lowther supplied the information for the release. The release stated that Rocky Mountain had 197 rental units and that its estimated earnings for 1966 were $310,000. In reality Rocky Mountain was in debt and retained only some 12 rental units.
On December 31, 1965 Lowry issued an investment letter in which Elkton was quoted at 8 cents per share. The letter related Elkton's purchase of 25% of Chemspray with an option to purchase an additional 26%, as well as the purchase of "several" car rental companies. It also stated that Elkton hoped to make a "major acquisition of an established business" within the month.
In January of 1966 Elkton reached 11 cents per share. Lowry's investment letter of January 22, 1966 stated that Elkton had paid $4,000 to redeem the Jerry Johnson gold mine. The letter also stated that Elkton looked "cheap" at 11 cents per share in view of the pending acquisitions. On January 27, 1966 a stockholders' letter was issued by Lowther in which the Jerry Johnson lease was reported along with the acquisitions of Chemspray and Rocky Mountain. It also represented that Elkton was listed on the Colorado Springs Stock Exchange; that Arthur Anderson (sic) and Company were employed as auditors; that an annual report would be issued in 1966; and that the company records would be transferred to computers by Elkton-controlled Accounting Systems Management, Inc., "a specialist in computer bookkeeping serving clients in Colorado." In truth the Colorado Springs Stock Exchange was Lowry's office; Arthur Anderson (sic) and Company declined to serve as Elkton's auditors; and Accounting Systems Management had only recently been established, consisted of two partners, and had no history of earnings.
In February Elkton was quoted at 10 cents per share in Lowry's investment letter. In March a news release announced Elkton had made three acquisitions, Solar Airlines, Hasty House Restaurant chain and Accounting Management Service. Solar Airlines was described as a regional carrier from Mexico to Albuquerque, New Mexico and Dallas, Texas using radar-equipped turbo-jets. Hasty House was described as a franchise with units from Kansas City to the West Coast and Accounting Management Service was described as being able to provide computerized bookkeeping service to all Elkton subsidiaries. The letter was very misleading. It again gave false credentials to members of the board of directors; it stated that one man was on the board when he did not serve; Hasty House was not purchased and it was hopelessly in debt; and Lowther purchased Solar Airlines on a $1 option. Solar Airlines in fact had only five airplanes of which four were not in use. Also Solar Airlines was in debt and the directors did not authorize its purchase.
On March 19, 1966 Lowry published another investment letter in which he repeated these acquisitions. On April 18, 1966 Lowry's letter quoted Elkton at 15 cents per share but noted that trading in the stock had been suspended by the S. E.C. as of 4:30 p. m. on that date because of suspected misrepresentations. It stated that the stock might be overvalued and that the current income was extremely small. As a result of these activities Lowry and Lowther created an artificial market for Elkton stock; the price rose from ¼ of a cent on December 2, 1965 to a high of 20 cents on April 14, 1966.
Prior to the S.E.C. suspension, Lowther and Lowry sold almost all of their Elkton stock acquired from Cresson and United. They had purchased their shares at 1/10 and ¼ of a cent per share and sold them at prices ranging from 2½ to 11 cents per share. Lowther and Lowry made tremendous profits.
In the interim private investors purchased Elkton stock. Mrs. Jolkovsky of Atlanta, Georgia, received the December 4, 1965 Lowry investment letter which described Elkton as the potential speculation of the year. She wrote to Lowry about the stock and sent a check for $120 to buy 6,000 shares at 2 cents per share. The order was not filled at that...
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