State v. Martin

• Citation: 85 S.D. 587,187 N.W.2d 576
• Decision Date: 01 June 1971
• Docket Number: No. 10644,10644
• Parties: STATE of South Dakota, Plaintiff and Respondent, v. B. Bruce MARTIN, Defendant and Appellant.
• Court: Supreme Court of South Dakota

Page 576

187 N.W.2d 576

85 S.D. 587

STATE of South Dakota, Plaintiff and Respondent, v. B. Bruce MARTIN, Defendant and Appellant.

No. 10644.

Supreme Court of South Dakota.

June 1, 1971.

Robert Amundson, Asst. Atty. Gen., Pierre, for plaintiff and respondent; Gordon Mydland, Atty. Gen., on the brief.

Joseph H. Bottum, III, Salt Lake City, Utah, for defendant and appellant.

PER CURIAM.

Fast Foods, Inc., was incorporated under the laws of the State of South Dakota on June 16, 1966. The defendant, B. Bruce Martin, was the organizer, promoter and manager of Fast Foods from its inception. He was not an officer, director or stockholder of the corporation. He was not licensed by the Commissioner of Securities of the State of South Dakota to sell the corporate stock. In addition, he was interested in other corporations by and through which the jury could find he converted money from the sale of capital stock in Fast Foods to himself and that Fast Foods was organized and operated to carry out a scheme to defraud persons by inducing them to invest therein.

On the night of March 17, 1967, Jarvis Wallum, who later testified for the state, and William Dillon, who later testified for the defense, both licensed by the Commissioner of Securities of South Dakota to sell Fast Foods stock, called upon Mrs. Margaret Schofield at her home northeast of Midland for the purpose of selling stock to her in Fast Foods. During this contact the two agents learned that she was having trouble with the federal government about the federal estate tax in the probate of her father's estate.

The next evening about 9 p.m. the defendant and William Dillon called at the Schofield home--the defendant representing that he was an authority on tax matters and was there to help her with her problem with the federal government. Mrs. Schofield then proceeded to show the papers and correspondence that she had about the federal estate tax and the defendant examined everything and advised her that it didn't look too bad to him and he thought he could get her out of the matter in 30 days. By this means the defendant gained Mrs. Schofield's trust and confidence, and purported to put her under obligation to him. He then proceeded to sell her stock in Fast Foods saying, 'If I can do you a good deed by getting you out of this tax matter * * * you are in * * * you will have to do me a favor. * * * (the) shares on this Fast Foods * * * are $3.00 now * * * they are going to come up (in a week) between five and six dollars.' The defendant, having applied the technique of the confidence man, then proceeded to apply his brand of high pressure salesmanship as follows--he told her:

1. That the stock was then selling for $3 per share, but in a week or two it would be selling for $6 per share.

2. That she could get her money back any time she needed or wanted it.

3. That her money would earn a great deal more invested in their stock than in a C.D. in the bank.

4. That Fast Foods owned three restaurants. In fact, the restaurants were owned by the defendant himself.

The defendant insisted that Mrs. Schofield purchase the stock, keeping the Schofields up the entire night.

Throughout the cases on fraudulent sales of stocks it is generally held that a failure to make disclosure by withholding facts, which in good conscience should be revealed, is as serious a misrepresentation as an actual oral or written misrepresentation itself. Texas Continental Life Ins. Co. v. Bankers Bond Co., D.C., 1960, 187 F.Supp. 14; Charles Hughes & Co. v. Securities and Exchange Com'n, 2 Cir., 139 F.2d 434, certiorari denied, 321 U.S. 786, 64 S.Ct. 781, 88 L.Ed. 1077; Securities and Exchange Com'n v. Universal Service Ass'n, 7 Cir., 106 F.2d 232. Within the compass of this rule, we note the following omissions:

1. The prospectus should have been and was not shown to Mrs. Schofield.

2. The defendant should have revealed to Mrs. Schofield the transfer to an Arizona corporation of large sums of money from the sale of capital stock.

3. The defendant should have explained to Mrs. Schofield that the only income of the corporation as of that date was $7,000 from the sale of franchises to one other person and himself. All other receipts came from the sale of capital stock.

4. Defendant should have explained the large sum out of the capital stock that was being paid for promotion, advertising and equipment.

About six o'clock the next morning, Mrs. Schofield gave the defendant her check for $6,000 for 2,000 shares of stock in Fast Foods. Defendant then woke up his associate, William Dillon who slept through the sale, and had him sign the stock purchase agreement, Dillon being a licensed salesman and the defendant not being so licensed by the South Dakota Securities Commission. In the course of the months that followed, Mrs. Schofield repeatedly asked for the return of her money without success. On her last contact with him, defendant even denied that he knew her.

On September 28, 1967, Margaret Schofield swore to a complaint charging that on March 18, 1967, the defendant did engage in a transaction, practice or course of business in the sale of securities which did work or tend to work a fraud and deceit upon her, Ch. 270, § 23(5), S.L.1961, and a second count to the effect that on that date the defendant had sold stocks, not having been licensed to do so by the Commissioner of Securities of the State of South Dakota. A preliminary hearing was held and the defendant was bound over to the circuit court for trial. An information was filed by the state's attorney of Stanley County and upon a conviction by a jury the defendant has appealed, assigning 23 errors. Counsel consolidates the 23 errors into 10 questions in his brief.

The first question presented by the defendant is quoted at length as follows:

'1. Are the statutes upon which the Complaint and amended Information were based unconstitutional for the reason that said statute fails to define the necessary elements of a crime and is too vague and indefinite to fully apprise the defendant of the nature and elements of the crime of which he was accused, and accordingly a denial of due process of law?'

Counsel argues that the statute must be held void as a denial of due process of the law for two reasons:

(1) It forbids an act in terms so vague that men of common intelligence must guess as to its meaning and differ as to its application, and

(2) The statute makes no provision for and requires no intent to work a fraud or deceit on the part of the accused.

The statute under which the defendant was prosecuted was enacted by the legislature as Ch. 270, S.L.1961, and as to pertinent parts provides as follows:

'55.9913 Violations. It shall be a viotion of the provisions of this chapter for any person:

(2) To act as an agent or a broker unless registered as such, where such registration is required, under the provisions of this chapter; (Now SDCL 47--31--124)

(5) To engage in any transaction, practice or course of business in the sale or purchase of securities which works or tends to work a fraud or deceit upon the purchaser or seller thereof;' (Now SDCL 47--31--128).

This statute was adopted from the model Blue Sky Act, Uniform Laws Annotated, which in turn was taken from the Federal Securities Act of 1933. See generally 47 Am.Jur., Securities Acts, p. 563.

15 U.S.C.A. § 77q., Fraudulent interstate transactions, as to pertinent parts provides as follows:

'(a) It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly--

(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.'

The difference between the federal act and the South Dakota statute is slight. Section 77q(a), supra, has been the subject of numerous federal and state decisions; and the constitutionality thereof has long been established.

In the case of Coplin v. United States, 1937, 9 Cir., 88 F.2d 652, it was held that § 77q(a), supra, is sufficiently definite and certain to meet constitutional requirements that accused be informed of the nature and cause of the accusation. In Queen v. Commonwealth, Ky., 434 S.W.2d 318, in construing the Kentucky statute, KRS 292.320, identical to the federal act, the court held:

'The appellant argues that KRS 292.320 is so vague, ambiguous, indefinite and uncertain as not to constitute a valid basis for a criminal prosecution. A similar attack on the substantially identical provision of the Federal Securities Act was rejected by a federal court in Coplin v. United States, 9 Cir., 88 F.2d 652, and we concur in the reasoning of that decision. See also Roberts v. United States, 6 Cir., 226 F.2d 464.'

We see nothing vague or ambiguous about SDCL 47--31--128. Admittedly it is broad and comprehensive but the sale of securities is complicated and complex. 'Transaction' refers to the sale of securities; 'practice' is the method of sale, in this case the employment of the 'confidence game' technique and the high pressure salesmanship; 'course of business', the transfer of large sums from the sale of capital stock to the Arizona corporation. The statute was clearly designed and intended to prohibit exactly the offense with which the defendant was here charged.

In the case of United States v. Lilley, 1968, D.C., 291 F.Supp. 989, the court stated:

'* * * Congress intended to charge every man with knowledge of the standards prescribed in the securities acts themselves.'

If any individual is engaged in the sale of securities, it is incumbent upon him if he does not understand the law to first ascertain both its content and its meaning. There is no reason to believe that the defendant did not know and fully understand what he was doing. The purpose of the Blue Sky laws is for the protection of the public. It is a...