Pandolfo v. United States, 2345.

• Citation: 128 F.2d 917
• Decision Date: 24 June 1942
• Docket Number: No. 2345.,2345.
• Parties: PANDOLFO v. UNITED STATES.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

128 F.2d 917 (1942)

PANDOLFO v. UNITED STATES.

No. 2345.

Circuit Court of Appeals, Tenth Circuit.

May 6, 1942.

Rehearing Denied June 16, 1942.

Dissenting Opinion June 24, 1942.

Caswell S. Neal, of Carlsbad, N. M. (Reed Holloman, of Santa Fe, N. M., on the brief), for appellant.

Everett M. Grantham and Donald B. Moses, both of Santa Fe, N. M. (A. Gilberto Espinosa, of Albuquerque, N. M., on the brief), for appellee.

Before PHILLIPS, BRATTON, and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

The defendant, appellant here, was tried on an indictment containing twelve counts, the first eight of which charged a scheme to defraud by use of the mails in violation of 18 U.S.C.A. § 338, and four counts charging violations of the Securities Act, 15 U.S.C.A. 77q (a) (1). He was convicted on each of the eight counts charging a scheme to defraud; the four counts charging a violation of the Securities Act failed, either by verdict of not guilty or by ruling of the court. The defendant was sentenced to a term of five years and $100 fine on each of the eight counts, arranged to impose a total of ten years imprisonment, from which judgment the defendant has appealed.

The eight counts in the indictment on which the defendant was tried, convicted, and sentenced, charge in substance that the defendant devised a scheme and artifice to defraud numerous persons named in the indictment by the sale of stock through false and fraudulent representations and promises, and the use of the mails in execution thereof. Each count of the indictment charged that the defendant organized and incorporated the Old Line Insurance Shares Corporation, with a capital structure of 20,000 shares no par Class A common stock, and 5,000 shares of Class B preferred stock. According to the allegations in the indictment, the scheme as devised contemplated the sale of this stock to so-called investors who were induced by false and fraudulent representations to buy the stock of the company; that defendant represented to the prospective investors that there would be no commissions or cost for the sale of the stock, except the nominal cost of organization. He represented that there were large profits to be made in the consummation of small loans, and that it was his intention to build a strong finance company; that he otherwise represented that the proceeds from the sale of stock would be used for the purpose of reinvestment in the loan business, which would return a large profit to the stockholders of the Old Line Company, in the form of dividends and increased value of the stock of the company.

In the execution of this scheme, it is alleged that the defendant, by use of the United States mails, delivered to prospective investors, bulletins, reports, financial statements, and other advertising matter, designed to induce, persuade, and entice prospective investors to purchase the stock of the Old Line Company, and that the representations contained in the mail matter were false, fraudulent, and deceptive, in that they misrepresented the prospective earnings of the company, the financial condition of the company, and represented that the company was earning profits when in fact interest upon the investments was paid out of the assets of the company and not from earned profits. It is alleged that the defendant converted the proceeds of the sale of the stock to his own use by purchasing stock in other companies, having little or no market value, and by setting it up on the books of the company as assets at a high and fictitious value, thereby converting to his own use the difference between what he paid for the stock and what he charged the Old Line Company. It is also charged that he converted to his own use the assets of the company created by the sale of stock by taking assets of the company and substituting therefor his personal note, which he carried as part of the assets of the company, thus becoming indebted to the company in the sum of $30,000.

It is also alleged that he purchased, for and on behalf of the Old Line Company, certain property in Albuquerque, New Mexico, known as the War Mothers Memorial Hospital Association, paying $750 in cash and agreeing to pay $29,250 in installments. Immediately thereafter, he liquidated his personal indebtedness to the company in the amount of $30,000 by the expedient of setting up the War Mothers Memorial Hospital Association property on the books of the company at a value of $60,000, and withdrawing his personal note in the sum of $30,000. Other specific acts of misrepresentation and fraud were alleged.

The record supports the allegations contained in each count of the indictment on which the defendant was convicted, but on appeal, defendant complains of errors occurring in the trial of the case which may be summarized as follows: (1) The trial court abused its discretion by unduly restricting the right to cross examine certain government witnesses, and prejudicial remarks of the court made in connection with the ruling thereon; (2) error of the court in permitting a government witness to testify concerning the value of shares of stock in certain insurance companies, purchased by the defendant on behalf of the Old Line Company, and carried as assets of the said company; (3) error of the court in refusing to permit the defendant to testify concerning his knowledge of the history of a certain insurance company, the stock of which he had purchased on behalf of the Old Line Company, and which was carried as a part of the assets of the company at an alleged fictitious value, and (4) refusal of the court to permit the defendant to testify concerning the value of the property known as the War Mothers Memorial Hospital Association.

The first point involves the testimony of a government witness who was an accountant and an employee of the Securities Exchange Commission. This witness had examined the books of the Old Line Company, and had testified in detail concerning its assets and the nature of the transactions which the appellant had conducted on behalf of the company, alleged to be fraudulent.

Under the organizational agreement, it became the duty of the defendant to deliver to the company assets equivalent to the value of the stock when sold. The specific point involved a transaction in which the defendant had exchanged the stock of the Old Line Company, having a book value of $145, for stock in the National Mutual Savings and Loan Association, which he placed on the books of the Old Line Company as an asset worth $210. By this transaction, according to the theory of the government, the defendant unjustly enriched himself in the sum of $65, representing the difference between the Old Line Company stock and the value of the stock which he acquired as an asset of the Old Line Company. The government witness, Ballou, testified that in his opinion the Old Line Company should have received the benefit of the $65 profit shown by the book transaction and not the defendant. Specifically, the defendant complains that the right of cross examination was unduly restricted when the government witness was asked the following question on cross examination: "All right. Now, if Mr. Pandolfo under his contract was required to turn in assets of the value of the amount of stock he sold, and if he turned in assets in all of that value how was anybody in the company defrauded?" To which the government objected as repetition, whereupon the court stated: "The objection will be sustained. Your question, of course, cannot be answered. The proposition, he formed this corporation, defrauded everybody, they are showing this to the extent that he got back $65.00 and has never accounted for by the books." Counsel for the defendant excepted to the ruling and the remarks of the court, and now contends that the right of cross examination was unduly restricted and the remarks of the court were prejudicial.

While detached from other testimony of this witness, and without considering the extent to which the witness was cross examined, and having the full background of the record, it appears that the court in sustaining the objection and making the remarks shown by the record, may have unduly curtailed the right of cross examination, and his remarks tended to unduly prejudice the defendant. But a full consideration of the whole record concerning the testimony of the government witness, Ballou, and the extent to which he was cross examined, clearly shows that substantially the same question had been previously asked by defendant counsel, and answered by the government...