Pandolfo v. United States

• Decision Date: 21 August 1922
• Docket Number: 2787.
• Citation: 286 F. 8
• Parties: PANDOLFO v. UNITED STATES. [1]
• Court: U.S. Court of Appeals — Seventh Circuit

286 F. 8

PANDOLFO v. UNITED STATES. ^[1]

No. 2787.

United States Court of Appeals, Seventh Circuit.

August 21, 1922

Rehearing Denied January 24, 1923.

Plaintiff in error, Pandolfo, with 12 others, was tried under an indictment of 11 counts, the first 10 charging violation of section 215 of the Penal Code(Comp. St. Sec. 10385), and the eleventh a conspiracy under section 37(Comp. St. Sec 10201), to violate section 215.Count 1 charged that the defendants devised a scheme to obtain money by means of false and fraudulent representations and promises, to induce persons to buy shares of stock in the Pan Motor Company, the false representations charged being in effect that of each $10 to be paid for each share of stock half would go to the credit of capital, and the other half to surplus for additional working capital; that the company had paid and would pay no fees to promoters; that the stock was worth more than the sale price of $10 per share, and would pay large dividends annually, and would be a profitable investment for purchasers; that the Pan Motor Company was manufacturing, and intended and would continue to manufacture, large numbers of tractors, which it would sell to the public for $1,495 each and to stockholders at 15 per cent. less, whereas all such representations and promises were to the knowledge of defendants false and fraudulent; and that in furtherance of such scheme and artifice to defraud a certain letter was mailed.Counts 2 to 10, inclusive, charged the same scheme each count setting up the mailing of a different letter in furtherance thereof.Count 11 charged conspiracy to commit the offenses charged in the other counts, setting forth as overt acts the mailing of the same and other letters, and the doing of certain other things.Pandolfo was found guilty on counts 1, 2, 3, and 5, and not guilty on the other counts, the other defendants being acquitted.On each of counts 1 and 2 he was sentenced to 5 years' imprisonment to run concurrently, and on each of 3 and 5 to 5 years, also to run concurrently, beginning at the expiration of sentence on counts 1 and 2.A fine of $1,000 was imposed under each of the 4 counts.The trial lasted about 7 weeks, the transcript is nearly 3,400 pages, although the bill of exceptions is largely in narrative form.

P. J. Lucey, Bernhardt Frank, and Gerald G. Barry, all of Chicago, Ill., for plaintiff in error.

Sylvester R. Rush, of Chicago, Ill., for defendant in error.

Before ALSCHULER and EVANS, Circuit Judges, and GEIGER, District Judge.

ALSCHULER Circuit Judge(after stating the facts as above).

The propositions relied on in briefs and arguments as ground for reversal are: (1) There was no evidence to sustain the counts; (2) the evidence for the government was based upon the conspiracy count alone; (3) there is fatal variance between the scheme as charged in the indictment and the evidence adduced for the government; (4) there was error in denying defendants the right to show to the jury moving pictures of the plant, and in the comments of the court on making his ruling thereon; (5)the court erred in admitting in evidence representations to prospective stock purchasers by stock salesmen, not parties to the indictment; (6) all the substantial evidence is at least as consistent with Pandolfo's innocence as with his guilt; (7)the court erred in conducting an investigation into the affairs of 'The Bankers,' Merchants' and Manufacturers' Journal' and 'Bankers' Journal'; (8) there was no evidence to show the mailing or receipt of the letters alleged in counts 1 and 5 to have been mailed; (9) there was error in admitting in evidence the report to Congress of the capital issues committee; (10)the court erred in excluding certain affidavits respecting Pandolfo's letter of October 5, 1917; (11) there was error in admitting in evidence application to 'blue sky' commissions of several states and correspondence relating thereto.

Propositions 1, 2, and 6 practically involve the question whether there was evidence to sustain the verdict, and the challenge thus made and earnestly maintained has necessitated careful inspection of entire transcript.Only some of the more salient facts can be here presented.For a number of years preceding 1917 Pandolfo was operating extensively in Texas and vicinity, and had evidently developed great facility in organizing and conducting 'campaigns' for the sale of intangible things, such as insurance.It appeared that in a short time he had built up there a very extensive, widespread insurance business, employing a great corps of agents.But ultimate financial success did not attend these efforts, and the business went to pieces leaving Pandolfo heavily in debt.In casting about for employment for his unusual talents, he hit upon the automotive industry, and conceived the plan of organizing a corporation for making primarily automobiles, also tractors, trucks, and other things, with capital stock divided into $5 shares, to be sold at $10 per share, of which he would receive half for organizing and selling the stock.With his characteristic activity and intensity, he proceeded to exploit his plan, and soon organized a body of agents to sell stock.He had no manufacturing experience whatever, and, beyond having used automobiles, was not experienced in their production or sale.

In 1916, while yet in the Southwest, and before any plans had been made for a plant or even a location, he prepared and widely circulated Government's ExhibitNo. 6 in an effort to obtain stock subscribers.Exhibit 6 is an excellent example of the perfervid emanations of the stock-selling promoter, who sets about to fire the imagination of prospective customers, and at all hazard sell them stock.It depicts in gorgeous colors the proposition in hand, and proclaims the success achieved by others who have been pioneers in the line, carefully avoiding, of course, all reference to the infinitely greater number of financial wrecks and failures strewn along the pathway.Other literature points out wonderful achievements in other lines; Bell Telephone and other notables coming in as the usual citation of instances where small original investments have produced marvelous results.Specifications of an automobile were set forth, taken largely, if not wholly, from the descriptions of well-known machines on the market.Exhibit 6 was much circulated both before and after the incorporation, and is typical of the enormous volume of literature with which for about two years Pandolfo flooded the country for stock-selling purposes.

By the last of 1916 considerable stock had been subscribed, and then Pandolfo came to Chicago, from which place for quite a number of months he conducted the campaign.The company was chartered early in January, 1917, and on January 15he sent out a letter, addressed to 'Dear Subscriber,' in which it was stated, among other things:

'Hurrah for the Pan Motor Company.Three cheers for the coming giant of the automobile World.The Pan Motor Company was incorporated on Tuesday, January 9, for $5,000,000, under the laws of Delaware.Our stock certificates are printed and in the office.In a few days the stock certificates will be made out and mailed to all those who have fully paid their subscriptions.Inclosed you will find a booklet which was printed before incorporation.(Exhibit 6.)Please read it carefully.'

Then follows eloquent urging that subscribers promptly pay up their subscriptions, complimenting the 'loyal bunch of subscribers,' asking each subscriber to interest a relative or friend, and offering a prize for each subscription obtained before Christmas.Upon organization of the company a written agreement was made between the company and Pandolfo, reciting the securing by Pandolfo as fiscal agent of many advance subscriptions for stock, designating him as 'exclusive fiscal agent,' on condition that there be turned into the company the net amount of $5 in cash for each share sold; that the sale price of each share of stock shall be not less than $10, and that for every share of the company's stock theretofore or thereafter sold Pandolfo shall receive the first half of the amount subscribed to compensate him for his services as exclusive fiscal agent.From other provisions of the contract, though it is not entirely clear, we conclude it was intended to provide that the expense of selling the stock, such as advertising, agents' commissions, and the like, should be borne by Pandolfo.The contract term was two years, with privilege on the part of Pandolfo to renew for another year, if within two years the $5,000,000 capital, or any increase, is not disposed of.Pandolfo agreed also to pay the expense of carrying on the corporate business until such time as the corporation had in bank not less than $30,000, but in any event he was to have the right to appoint engineers, superintendents, and general manager of factory for a year after construction began; also exclusive right to designate location of first factory.

In the latter half of 1917 some changes were made in the contract decreasing his compensation to 25 per cent.Apparently this was in deference to the 'blue sky' commissions of certain states, which limited promotion and stock-selling expenses greatly below the 50 per cent.But a resolution was adopted by the company for its paying certain expenses theretofore borne by Pandolfo.Some time later still further reduction in his compensation was made, but provision also made for payment of yet more of the expense by the company.The stock-selling campaign proved very successful, realizing from 50,000 to 75,000 subscribers, mostly in small amounts, and generally on installment payments.Pandolfo, being entitled to the first half collected,...