Redmond v. United States, 1819.

• Decision Date: 22 September 1925
• Docket Number: No. 1819.,1819.
• Citation: 8 F.2d 24
• Parties: REDMOND v. UNITED STATES.
• Court: U.S. Court of Appeals — First Circuit

8 F.2d 24 (1925)

REDMOND v. UNITED STATES.

No. 1819.

Circuit Court of Appeals, First Circuit.

September 22, 1925.

Leo A. Rogers, of Boston, Mass. (Daniel A. Shea, of Boston, Mass., on the brief), for plaintiff in error.

George R. Farnum, of Boston, Mass. (Harold P. Williams, of Boston, Mass., on the brief), for the United States.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

JOHNSON, Circuit Judge.

The plaintiff in error, hereinafter called the defendant, was convicted in the court below upon two indictments, in one of which he was charged, with several others, under section 215 of the Criminal Code (Comp. St. § 10385), with the use of the United States mails in furtherance of a scheme to defraud, and in the other with conspiring, under section 37 of the Criminal Code (Comp. St. § 10201), to commit the offense of using the United States mails for the purpose of carrying out the same.

In 1915 the defendant caused a corporation, known as G. F. Redmond & Co., to be organized under the laws of the commonwealth of Massachusetts, to do a stock brokerage business, whose capital stock was $100,000, divided into 1,000 shares, of which the defendant held 998, Diggins, his brother-in-law, 1, and Lamont 1, which he testified the defendant had transferred to him. The defendant was the treasurer of this corporation, Diggins clerk, and Lamont its president. Its head office was in Boston, and it had in 1923 13 branch offices, about 11,000 customers and 400 to 500 employees. It had as subsidiaries Withington & Co. and T. F. Manning & Co. It claimed to do business by buying stocks for its customers upon the partial payment plan which, in a booklet issued by it, was stated to be as follows:

"When you make the initial payment of 20 per cent., we buy the stock or bond for your account at the market price. This leaves 80 per cent. of the purchase price due us from you, which we carry for you, charging you interest at the rate of 6 per cent. per annum on your debit balance. In effect, we extend you credit on the difference between the purchase price of the securities we buy for your account and the amount you pay us. The monthly statement also shows all credits from all sources, including dividends accruing to the securities carried in the customer's account, when there are such credits. Naturally the interest, as well as your monthly payment, becomes less each month. The securities you purchase are our collateral for the credit extended to you."

An involuntary petition in bankruptcy was filed against the corporation on March 4, 1924, and receivers were appointed. Previous to this there had been an inspection of the affairs of the company by post office inspectors, who had interviews with Redmond and with Lamont. From the report of the inspectors its appeared that, at the time the company was closed down and its business stopped, it had in its possession securities of the value of about $120,000 and owned others of the value of about $60,000, which it had pledged as collateral, that to purchase all the stock which it had agreed to purchase for its customers would require about $8,000,000, and that it owed its customers about $2,800,000. The evidence disclosed that nobody connected with the company was a member of any stock exchange, that brokerage houses and persons with whom the company claimed to have had business, and from whom its books showed that it received confirmation sheets, were fictitious, and that the amount of stock which it had purchased under its proposed plan could not be ascertained, because certain books of the company had been destroyed by direction of the defendant. These books were the customers' stock ledger and in and out books, showing the purchase of stocks and their transfer.

There was evidence from which the jury could find that the confirmations which the company had entered upon its books were fictitious and fraudulent. One Voliner, a receiving clerk in the employ of the company, testified that he received stock from only one New York broker, about one item a week, and that no stock was ever received from other New York brokers from whom confirmations were alleged to have been received.

The president of the company, Lamont, testified that:

"Our concern had dealings with a New York broker by the name of McCarty; but I do not know him or know whether or not he is a real person. We had dealings with a New York broker by the name of Murray; but I do not know or did not know whether or not he is a real person."

As a result of complaints, Post Office Inspector Hall had an interview with Lamont on February 14th, who requested that he wait for the return of Redmond, which was done, and on February 19th he interviewed the latter. At this interview it was computed that, in order to carry out the partial payment plan with 11,000 customers, it would be necessary to expend about $8,000,000. The inspector asked to be allowed to take an inventory of stock on hand, which Redmond refused to have done, on the ground that the certificates were pledged with brokers in many places, and that it would involve a very severe interruption of business to produce them. The post office inspector summed up his efforts to learn about the financial condition of the company in these words:

"So I was never able to ascertain from my visits or from my examination precisely what stock sales or purchases had been made by G. F. Redmond & Co."

There was evidence from which the jury could find that stocks were not actually purchased and carried for a customer upon his credit, as promised in the booklet issued by the company; that entries were made of purchases in fictitious names of stock whenever a customer entitled to delivery called for delivery of his stock which he had previously purchased, according to a confirmation received by him; that the list of fictitious names was in the possession of one of the employees of the company, which he was enjoined to keep secret and never show to anybody; and that for his services he was to receive the sum of $50,000 at the end of 2 years. He received his instructions directly from the defendant, who instructed him to go to Mr. Bowman, who would show him the work which he was to do.

The scheme to defraud was set out in the indictment as follows:

"That said defendants should, under the name and style of G. F. Redmond & Co., Inc., and Withington & Co., falsely pretend and represent that they (the said defendants) were in a position to purchase, and would purchase for and on the account of such persons, so intended to be defrauded, stocks and securities on a partial payment plan, so called, which said partial payment plan was, in substance and effect, as follows: That is to say, that said defendants would purchase stocks and securities for and on the account of such persons so intended to be defrauded, upon the payment of a small initial payment of the purchase price and the payment of the balance due on said purchase price in easy monthly payments; that said defendants would in effect extend to the persons so intended to be defrauded credit on the difference between the purchase price of said stocks and securities to be bought for and on account of such persons so intended to be defrauded and the small initial payment made by such persons so intended to be defrauded.

"Whereas in truth and in fact as they (the said defendants) at all of said times well knew, they, the said defendants, were not in a position to purchase said stocks and securities upon the payment of a small initial payment by the persons purchasing said stocks and securities, but, on the contrary, they (the said defendants) at all of said times had the view and intent to take into their possession and under their control the moneys and property of all and each of such persons as should invest money and property with them (the said defendants) as aforesaid, and convert such money and property to their (said defendants') own use and benefit and each of such persons to cheat and defraud."

There were nine counts in each indictment, in which it was alleged that a letter in furtherance of said scheme to defraud, addressed to a certain person named in each count, was sent through the mails of the United States. The defendant was convicted upon all the counts except the first and sixth in each indictment.

The errors assigned are: The denial of a motion to direct a verdict for the defendant; the failure to give instructions requested; instructions that were given; and the admission of evidence.

It was claimed by the defendant, in his motion for a directed verdict, that there was no evidence that the defendant personally or in concert with others had devised a scheme to defraud, and he requested, in substance, that the jury be so instructed.

The jury were instructed, in substance, that, if they should find that Redmond & Co. did not purchase shares of stock upon payment of one-fifth of the purchase price, as promised in the booklet which was issued by the company, or if it was not in a position to purchase them, under the allegation in the indictment that the defendant, under the name and style of G. F. Redmond & Co., Inc., and Withington & Co. made these representations, the scheme to defraud was one devised by the defendant and his associates, and that the indictment alleged a scheme to be carried out by the defendants under the name and style of G. F. Redmond & Co.

Stripped of all legal verbiage, the question presented is whether one who has organized a corporation of which he is the active and controlling...