Queen v. Com.
Decision Date | 15 November 1968 |
Citation | 434 S.W.2d 318 |
Parties | Blue Sky L. Rep. P 70,794 Charles QUEEN, Appellant, v. COMMONWEALTH of Kentucky, Appellee. |
Court | Supreme Court of Kentucky |
Eugene Goss, Harlan, for appellant.
John Breckinridge, Atty. Gen., John B. Browning, Asst. Atty. Gen., Frankfort, for appellee.
CULLEN, Commissioner.
Charles Queen was convicted of fraud, deceit or misrepresentation in the sale of preorganizational stock certificates in a proposed corporation, in violation of KRS 292.320(1) ( ), and his punishment was fixed at a fine of $5,000 and a jail sentence of six months, pursuant to KRS 292.991. Appealing, he raises numerous grounds of error, in several of which we find merit such as to require reversal.
The statute, KRS 29i.320(1), is as follows:
'(1) It is unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly:
'(a) To employ any device, scheme, or artifice to defraud;
'(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or
'(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.'
The indictment paraphrased the statute and it embodied, by way of description of the facts constituting the offense, only the statements that the alleged fraud was 'in connection with selling stock subscriptions,' that the defendants (Queen and two others) misrepresented to various named individuals 'their real purpose and intent for the sale of subscriptions for stocks,' and 'diverted the money into unauthorized enterprises, all contrary to their representations in obtaining the money.'
The proof was that Queen was a principal stockholder in a holding company known as General Industries, which owned subsidiary corporations known as Old Shaker Quarry, Chemflo, and American Agency. Queen also was the sole owner of a corporation known as Kentucky Motor Sports, which had just been organized. The three corporations owned by General Industries were in bad financial shape, as a result of which General Industries too was in had shape. Kentucky Motor Sports never had any substantial assets.
Queen conceived the idea of forming a new holding company, to be known as American Industrial Development Corporation. He also obtained in Ohio a charter for a proposed new life insurance company. He then engaged Joe Jemeley and Mack Jemeley to sell preorganization stock in the new holding company, representing to them that the 'ultimate and main business for the company was to be the insurance business.' The Jemeleys proceeded to sell the stock to a number of people in Bell County, Kentucky, representing to them that the primary purpose of the holding company would be to acquire a controlling interest in the proposed new insurance company and to get it in operation. The money received from the stock sales, amounting to $69,200, was all turned over to Queen.
Instead of using or holding the money for purchase of stock in the insurance company, Queen invested it in the three subsidiary corporations owned by General Industries, and in Kentucky Motor Sports. In turn he acquired stock in those corporations which he took in his name as 'Trustee,' intending, he said, to turn the stock over to the new holding company when its incorporation was completed. The money invested in the four corporations above mentioned did not save them from financial collapse, and their stock became worthless.
One of Queen's contentions on this appeal is that the evidence was not sufficient to sustain a conviction of fraud, deceit or misrepresentation on his part; that there was no showing that he diverted any of the money to his personal use or realized any money from the venture; that the wording of the stock subscription agreements authorized him to invest in subsidiary corporations for the new holding company; and that Queen did not personally make any misrepresentations to the buyers of the stock.
It is our opinion that the evidence was sufficient to sustain the conviction. While Queen may have hoped that he could save the floundering subsidiary corporations of General Industries, and could save his own Kentucky Motor Sports, by investing the subscription money in them, and thereby their stock would become of value and injure to the benefit of the subscribers to the stock of the new holding company, the fact is that Queen personally stood to benefit by increase in the value of his personal holdings in General Industries and Kentucky Motor Sports if he could get them in a solvent condition. If he had invested in the insurance company, as represented he would do, the stock subscribers would all have come in with Queen on an equal basis, whereas the way it actually turned out the subscribers' money was used in an effort to pump up Queen's existing holdings. Furthermore, had all of the subscription money been invested in the new insurance company it well might have been a successful venture, whereas the actual dissipation of the money by Queen among the four existing, failing companies was unsuccessful. As far as concerns the wording of the subscription agreements, it does not mean, as we read it, that Queen could use the subscription money at his discretion to buy stock in such companies as he chose, prior to completion of the organization of the new holding company. And in any event, the wording would not prevail over positive oral representations as to what company the money would in fact be invested in. As concerns the question of whether Queen personally made any misrepresentations to the stock buyers, we consider that question to be immaterial, because Queen did misrepresent to the Jemeleys and they went out to the prospective buyers as his agents.
We come now to a group of contentions, which we consider to be related, having to do with alleged defects in the indictment, failure to furnish an adequate bill of particulars as ordered by the court, and errors in the instructions. In considering the questions raised we think it is essential to keep in mind that the statute in issue proscribes fraud, misrepresentation or deceit 'in connection with the * * * sale * * * of any security.' So the key act in an offense is the sale and the offense grows out of the conduct employed in the sale.
The Commonwealth in the instant case, in the indictment, the bill of particulars, and the instructions, undertook to treat the entire sale program or venture in relation to the...
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