People v. Atwater
| Decision Date | 07 July 1920 |
| Citation | 229 N.Y. 303,128 N.E. 196 |
| Parties | PEOPLE v. ATWATER. |
| Court | New York Court of Appeals Court of Appeals |
Morton Atwater was convicted of the crime of illegal hypothecation of customers' securities as a broker, and from a judgment of the Appellate Division (191 App. Div. 345,181 N. Y. Supp. 742), reversing the judgment of conviction and dismissing the indictment, the People appeal.
Judgment of Appellate Division reversed, and that of Trial Term affirmed.
See, also, 182 N. Y. Supp. 941.
Raymond E. Aldrich, Dist. Atty., of Poughkeepsie, for the People.
Frank B. Lown, of Poughkeepsie, for respondent.
[1] One the 21st day of June, 1918, the defendant, together with Gilbert F. Foote, Harold W. Sherrill, and Eliot Atwater, composing the firm of Atwater, Foote & Sherrill, of Poughkeepsie, was indicted by the grand jury of Dutchess county upon six counts; three for grand larceny in the first degree, two for hypothecation of customers' securities, and one for receiving stolen goods. The defendant was tried separately. At the close of the evidence the district attorney elected to rely upon the counts of grand larceny in the first degree committed by a bailee or broker (embezzlement), and hypothecation of customers' securities. The other counts were dismissed. The jury convicted the defendant of the crime of hypothecation of customers' securities. This was an acquittal of the charge of grand larceny, and the verdict of the jury was equivalent to a finding that there was no intent to convert the customers' securities to his own use on the part of the defendant.
The facts which led up to the acts charged in the indictment arose as follows: The firm of Atwater, Foote & Sherrill was engaged in the brokerage business in the city of Poughkeepsie. When the government issued Liberty Bonds the firm took subscriptions. It received a number of subscriptions for the first Liberty Loan of 3 1/2 per cent. bonds. When the second Liberty Loan was put out it took subscriptions from its customers aggregating about $93,000, many of them being for small amounts, and received the initial payment of 2 per centum thereof. The defendant had general charge of the subscriptions. As the subscription blanks were signed by the customers, they were laid upon his desk, and he made notations upon them showing whether they were to be paid in full or in installments. He also noted in his own handwriting the bank through which the subscriptions were to be taken. Instead of turning over to the banks the subscriptions of its customers, the firm on various dates from October 16, 1917, to October 27, 1917, subscribed for various amounts of Liberty Bonds in its own name at four local banks. At the Merchants' National Bank the firm subscribed for bonds aggregating in amount $13,250; and as the subscriptions were made the 2 per cent. thereon was paid by the firm to the bank. At about the same time the subscriptions for the remainder of the $93,000 were made to three other banks. On some of the firm's subscriptions it was stated that the subscription was made on behalf of the clients of the firm, and on all of them a notation was made of the denomination of bonds required in accordance with the amounts of the customers' subscriptions.
According to the government plan the first payment after the initial 2 per cent. was to be made upon the subscriptions on the 15th of November, 1917. On November 14th a collateral note, due in three months, was given by the firm to the Merchants' National Bank for the sum of $12,985, being 98 per cent. of the subscription made at that bank. This was credited to the firm on the books of the bank, less discount, and on that day the firm gave its check to the bank for the sum of $12,985, with instructions to use the money to take up the bonds. The check was signed by Sherrill. Who signed the note is in doubt. The note was subsequently destroyed, and there is no difinite evidence on this subject; but there is no doubt that the defendant knew of and participated in this transaction. The bonds were then unissued, and the bank was to receive the bonds when issued and hold them as collateral security for the payment of the firm's note.
Among the subscriptions that were taken through the Merchants' National Bank was those of seven women whose names are mentioned in the indictment, the total amount of whose subscriptions aggregated $2,350. The remainder of the subscriptions at this bank were made by 28 other customers in small amounts; so that the subscription which the firm made at this bank was intended to supply the bonds for the subscriptions of 35 different customers. The subscriptions of the seven women mentioned in the indictment were fully paid to the firm on or before the 15th of November, 1917, which was one day after the note was given to the bank.
The bonds came to the bank on or about the 27th or 28th day of November; and, as was customary with securities held as collateral, they were placed in an envelope by the bank and marked with the name of the firm. No allotment of them among the original subscribers was made. The bank knew no one in the transaction but the firm. The firm had an arrangement with the different banks that it might by making payments to the bank on the note release such of the bonds as the firm desired. As the customers called for the bonds this was done, and the bonds were taken from any one of the banks as suited the convenience of the firm; but the money paid to the firm by the seven women was not (except the original 2 per cent.) used to release bonds from the lien of the bank, but was kept by the firm. On the 13th of February, 1918, the note fell due. The defendant, representing the firm, then went to the bank, gave a renewal note for the same amount, to wit, $12,985, due in 90 days, and paid the discount thereon. This note, like the first, was a collateral note in the form usually used among bankers, and recited that $13,250 in amount of second Liberty Bonds were pledged for its payment.
For this act of February 13th, alleged to be the hypothecation of bonds belonging to the seven women, the defendant was indicted and convicted. On the first of March, 1918, defendant discovered that two of his partners by dishonest acts had made way with about $750,000 and left the firm hopelessly insolvent. The defendant personally was innocent and ignorant of these transactions, and he himself was ruined financially. He supposed at the time the money was borrowed from the bank and the note was renewed and until the March following that the firm was fully solvent. When the note given in February fell due the bonds held by the bank as collateral were sold to satisfy its lien, and the seven women lost the money which they had paid the firm on their bond subscriptions.
On appeal from the judgment of conviction the Appellate Division reversed, and the indictment was dismissed, ‘upon...
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