Stone v. United States, 8273-8277.

• Decision Date: 27 June 1940
• Docket Number: No. 8273-8277.,8273-8277.
• Citation: 113 F.2d 70
• Parties: STONE v. UNITED STATES, and four other cases.
• Court: U.S. Court of Appeals — Sixth Circuit

113 F.2d 70 (1940)

STONE v. UNITED STATES, and four other cases.

Nos. 8273-8277.

Circuit Court of Appeals, Sixth Circuit.

June 27, 1940.

Arthur Brothers, of New York City (Lee, Cox & Hier, of Knoxville, Tenn., on the brief), for appellants Elias T. and Harold Stone.

C. W. Key, of Knoxville, Tenn. (Kennerly & Key, J. H. Doughty, and W. C. Burton, all of Knoxville, Tenn., on the brief), for E. T. Shaw and John G. Anderson.

W. Hoyle Campbell, of Knoxville, Tenn., for Sam G. Kennedy.

James B. Frazier, Jr., of Knoxville, Tenn., and H. T. Nichols, of Atlanta, Ga. (James B. Frazier, Jr., of Knoxville, Tenn., on the brief), for appellee United States.

Before SIMONS, ALLEN, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

These are separate appeals from judgments of conviction in which each appellant was ordered to serve a term of seven years.

Elias T. Stone and Harold F. Stone, appellants in Nos. 8273 and 8274, were tried and convicted on thirteen indictments containing thirty counts; John G. Anderson, appellant in No. 8275, was tried and convicted on eight indictments containing seventeen counts; E. T. Shaw, appellant in No. 8276, was tried and convicted on nine indictments containing thirteen counts, and Sam G. Kennedy, appellant in No. 8277, was tried and convicted on four indictments containing nine counts.

The charges against appellants involve fraud in the sale to the public of the capital stock of two corporations, i. e., Television & Electric Corporation of America and Television & Projector Corporation of America.

Appellee charged that appellants had violated Section 5(a) (1) of the Securities Act of 1933, Sec. 77e(a) (1), Title 15, United States Code, 15 U.S.C.A. § 77e(a) (1), which reads as follows:

"Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly —

"(1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell or offer to buy such security through the use or medium of any prospectus or otherwise." — and Section 17(a) (1) of the Securities Act of 1933, Section 77q(a) (1), Title 15, United States Code, 15 U.S.C.A. § 77q(a) (1), which reads as follows:

"It shall be unlawful for any person in the 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 —

"(1) to employ any device, scheme, or artifice to defraud." — and also Sections 88 and 338 of Title 18, United States Code, 18 U.S.C.A. §§ 88, 338.

Appellants, Elias T. Stone and Harold F. Stone, assign fifteen errors, John G. Anderson, fourteen, E. T. Shaw, twelve, and Sam G. Kennedy, eighteen.

By briefs, appellants exhibit a clear statement of the points of law or fact to be discussed with proper reference to the record pages and the authorities relied on only as to the following errors:

1. Lack of evidence to sustain the charges;

2. A fatal variance between the averments of the conspiracy indictments and the evidence;

3. The verdict of the jury was vitiated by an unsuccessful attempt to bribe one of its members; and

4. Denying appellant, Sam G. Kennedy, motion for severance and continuance.

It is assumed that appellants have abandoned all others and in any event they need not be considered because of failure to comply with Rule 21 of Revised Rules of this court. I. T. S. Rubber Company v. Essex Rubber Company, 272 U.S. 429, 432, 47 S.Ct. 136, 71 L.Ed. 335; Eastman Kodak Company v. Southern Photo Materials Company, 273 U.S. 359, 369, 17 S.Ct. 400, 71 L.Ed. 684; Kahn v. United States, 6 Cir., 20 F.2d 782; Hyney v. United States, 6 Cir., 44 F.2d 134.

Prior to 1932, the Television & Electric Corporation of America, organized under the laws of the State of Delaware, with John L. Lyons, president, and Samuel S. Torrisi in charge, maintained and operated an experimental laboratory at No. 12 Elm Street, New York City, developing and perfecting various inventions of Torrisi for some of which patent applications were pending. The primary purpose of the corporation, so far as material, was designing and inventing television reception sets. It was authorized under its charter to issue 1,000,000 shares of stock, par value $1, a block of which was transferred to Torrisi for his discoveries, and M. J. Hoey & Company, stockbrokers of New York, were employed as underwriters and distributors of the remaining shares.

John J. Lyons, brother-in-law of M. J. Hoey, served as president and the organization minutes show that William L. Edison, son of the famous inventor, had consented to serve as director and consulting engineer.

In February, 1932, appellant, Sam G. Kennedy, a stock salesman engaged in business in Tennessee and contiguous states, read Hoey's advertisements of the sale of the stock of the Television & Electric Corporation of America and bought for resale, 500 shares from Hoey & Company.

Kennedy had a controversy with Hoey and wrote Stone & Company, an over-the-counter brokerage firm of New York City, with which appellants, Elias T. Stone and Harold F. Stone, his son, were associated, requesting them to obtain for him additional shares of said stock and was advised the matter would be investigated and his requirements met if possible. Shortly thereafter, appellant, Elias T. Stone, called upon Torrisi and, as a result of negotiations, on September 22, 1932, a contract was entered into between the Television & Electric Corporation and Stone & Company, by the terms of which the latter agreed to purchase 40,000 shares of the Television stock to be delivered over a period of two years. The contract was discontinued with Hoey & Company. Torrisi gave to Stone & Company a copy of the prospectus theretofore used by Hoey & Company in the sale and distribution of the corporation's stock and additional data, from which Stone & Company prepared a new one.

Thereafter, appellants, Elias T. Stone and Harold F. Stone, doing business as Stone & Company, sent through the mails the prospectus and various pamphlets concerning the value of the stock and launched a campaign for its sale. Between November 30, 1932 and May 3, 1934, Stone & Company acquired from the corporation, for resale, 29,000 shares of its stock, for which it paid from 15 to 30 cents per share, or an average price of 20.9 cents, a total of $6,070.00. The appellant, Sam G. Kennedy, acquired for resale, 7,247 shares from Stone & Company for $8,925.28, or an average of $1.231 per share.

During the latter part of 1934, Kennedy associated with him, appellants, John G. Anderson and E. T. Shaw, in the sale of the stock and, together, they resold these shares to numerous persons, using the prospectus prepared and distributed by Stone & Company. Shares of the stock were sold in twenty-six states of the Union and in two foreign countries. Efforts to sell were abandoned May 25, 1936, at the request of the Securities & Exchange Commission. While the sale by Stone & Company of the Television & Electric Corporation stock was being investigated by the Securities Exchange Commission, the Television & Projector Corporation was organized under the laws of New York in March, 1936, with appellant, Elias T. Stone, one of its promoters, as president. Its alleged purpose was to manufacture and place on the market an automatic radio tuning device, invented and patented by Joseph La Via, also one of its promoters and organizers.

This corporation acquired a 90-day option, which was never exercised, to purchase the plant and business of the Coxsackie Manufacturing Company, of Coxsackie, New York, engaged in the manufacture of motion picture projecting machines, and in straitened financial circumstances. The Television & Projector Corporation had authorized capital of 150,000 shares of Class A, non-voting stock, par value $1.00, and 50,000 shares of Class B voting stock, par value $1.00. It was authorized to sell 80,000 shares of Class A and 20,000 shares of Class B which it offered at $1 per share on March 25, 1936, through Stone & Company.

Appellants, Elias T. Stone and Harold F. Stone, employed Gerald Abbott to prepare a prospectus for the company, which he did with data furnished in part by the Stones, and filed it with the Securities and Exchange Commission, pursuant to the Securities Act of 1933, § 2, as amended, 48 Stat. 905, 15 U.S.C.A. § 77b, but no registration statement was filed. Section 6 of the Act, 48 Stat. 78, 15 U.S.C.A. § 77f.

Sixteen thousand two hundred sixty (16,260) shares of the Projector Corporation stock were sold by Stone & Company, for which the corporation received $8,541.08, or approximately 52 cents per share. The appellants, John G. Anderson and E. T. Shaw, acquired a part of this stock from Stone & Company, for approximately 90 cents per share and resold it for $10 to $15 per share.

During the time the stocks of the respective corporations were being sold, their current financial condition, the value of their assets and the prospects of future earnings, based on facts then existing, were known personally to the appellants, Elias T. Stone and Harold F. Stone. The statement was made in some of this advertising literature that the Television & Electric Corporation was the pioneer in developing and making for practical use in the home, television reception sets without magnification, showing a direct television screen picture, 12" × 12" in size, composed of 60 lines, 20 pictures to the second.

It was represented that the most popular television set then in use was the scanning disc type, not larger than four square inches, and therefore useless for most practical purposes and that the next important similar device was the lens disc type which projects the picture on a screen, the cost of which was prohibitive, ranging up to $500, and that the price of the lamp, alone, a part of this device, ranged up to $200. Further...