People v. Landes

• Decision Date: 08 July 1993
• Parties: The PEOPLE of the State of New York, Respondent, v. Robert LANDES, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 292

600 N.Y.S.2d 292

192 A.D.2d 1

The PEOPLE of the State of New York, Respondent, v. Robert LANDES, Appellant.

Supreme Court, Appellate Division Third Department.

July 8, 1993.

Robert M. Cohen, Ballston Lake, for appellant.

David A. Wait, Dist. Atty. (Jerry J. Scarano, Jr., of counsel), Ballston Spa and Robert Abrams, Atty. Gen. (David C. Farman and R. Verle Johnson, Jr.), of counsel, for respondent.

Before WEISS, P.J., and LEVINE, CREW, MAHONEY and CASEY, JJ.

LEVINE, Justice.

Appeal from a judgment of the County Court of Saratoga County (Williams, J.), rendered January 6, 1992, upon a verdict convicting defendant of the crimes of fraud in the sale of securities and unregistered sale of securities.

Defendant was indicted in Saratoga County on six counts of grand larceny in the third degree and eight counts of criminal violation of provisions of General Business Law article 23-A (the Martin Act), consisting of six counts of fraud in the sale of securities in violation of General Business Law § 352-c(6), one count of fraud in the sale of securities in violation of General Business Law § 352-c(1), and one count of unregistered sale of securities in violation of General Business Law § 359-e(3). After a jury trial, defendant was convicted of the one count of unregistered sale of securities and the one count of fraud in the sale of securities in violation of General Business Law § 352-c(1), but was acquitted on the remaining 12 counts.

The charges against defendant arose out of his efforts to attract investors in a venture for the distribution and marketing in the United States of a health food product called Nutri-King, a soy bean and rice mixture manufactured in India. Defendant, the owner of a health food store and cafeteria, had entered into a contract with the manufacturer of the product giving defendant the sole distribution rights in the United States. Defendant proposed to set up a corporation to seek one or more distributors for marketing the product domestically. He then began to solicit investors whose cash payments would be exchanged for shares of the capital stock of the proposed corporation. Eventually, he collected some $100,000 from 12 investors. Six of those investors, whose contributions aggregated $75,000, testified at the trial. Each described oral representations made by defendant that they would receive shares of stock in the new corporation, that their investment would be used solely to buy the Nutri-King product and that, pending purchase of the product, a special escrow account would be set up for the invested funds. Each investor signed a written agreement with defendant which, however, did not contain defendant's oral promises. The People introduced into evidence defendant's Grand Jury testimony given after waiving immunity. He testified that he made no oral promises to investors and felt free to use their funds for his own purposes during the period when he was earnestly (albeit unsuccessfully) seeking distributors for Nutri-King.

Defendant's first point on appeal is that his two convictions of Martin Act violations should be reversed and the charges dismissed because his transactions with the investors were not public offerings of securities, but rather personal sales of stock in a private corporation. Defendant points to the evidence that all of the sales were directly made to individuals he knew or who were introduced to him by someone he knew personally. Thus, defendant argues, there was no offering to the public at large. We disagree.

The Martin Act was designed to protect the public from fraudulent exploitation in the offering and sale of securities and the protection of investors from such practices (see, CPC Intl. v. McKesson Corp., 70 N.Y.2d 268, 277, 519 N.Y.S.2d 804, 514 N.E.2d 116). When there is no New York authority on point, we are advised to consider Federal court decisions construing the Federal Blue Sky Laws (see, All Seasons Resorts v. Abrams, 68 N.Y.2d 81, 87, 506 N.Y.S.2d 10, 497 N.E.2d 33; see also, State of New York v. Rachmani Corp., 71 N.Y.2d 718, 726, 530 N.Y.S.2d 58, 525 N.E.2d 704).

In addressing the question of whether a particular securities transaction constituted a public offering for Federal securities law jurisdiction, the Federal courts have focused the inquiry on the offerees' need for the protection afforded by registration (see, Securities & Exch. Commn. v. Ralston Purina Co., 346 U.S. 119, 127, 73 S.Ct. 981, 985, 97 L.Ed. 1494; Van Dyke v. Coburn Enters., 873 F.2d 1094, 1098). Registration promotes full disclosure of information thought necessary to make an informed investment decision (see, Securities & Exch. Commn. v. Ralston Purina Co., supra, 346 U.S. at 124, 73 S.Ct. at 984). Four factors have been identified to determine whether potential investors need the protection of a registration statement: (1) the number of offerees (not just the number of actual purchasers) and their relation to each other and to the issuer, (2) the number of units offered, (3) the size of the offering, and (4) the manner of the offering (see, Doran v. Petroleum Mgt. Corp., 545 F.2d 893, 900; see also, Hill York Corp. v. American Intl. Franchises, 448 F.2d 680, 691). The evidence here, in our view, supports the conclusion that this was a public offering. There were 12 actual subscribers to stock in defendant's proposed corporation. However, defendant had offered a third party money for obtaining potential investors and did compensate that individual for...