Suetter v. United States, 10300.

• Decision Date: 18 January 1944
• Docket Number: No. 10300.,10300.
• Parties: SUETTER v. UNITED STATES.
• Court: U.S. Court of Appeals — Ninth Circuit

140 F.2d 103 (1944)

SUETTER v. UNITED STATES.

No. 10300.

Circuit Court of Appeals, Ninth Circuit.

January 18, 1944.

William J. Prendergast, Jr., and David Weinstein, both of Portland, Or., for appellant.

Carl C. Donaugh, U. S. Atty., and J. Mason Dillard, Asst. U. S. Atty., both of Portland, Or., Robert S. Rubin, Sp. Counsel, of Philadelphia, Pa., Charles E. Wright, of Portland, Or., and Theodore L. Thau, of Philadelphia, Pa., for appellee.

Before GARRECHT, STEPHENS, and HEALY, Circuit Judges.

STEPHENS, Circuit Judge.

An indictment containing seven counts was filed against appellant. The first two counts charged him with using the mails in connection with a scheme to defraud, contrary to the terms of § 338 of Title 18 U.S.C.A.¹ The other five counts charged him with using the mails in furtherance of a scheme to defraud in the sale of securities, contrary to the Securities Act of 1933, 15 U.S.C.A. § 77q(a) (1).² The term "sale" is defined by § 77b(3), Title 15 U.S. C.A., as including every "contract of sale or disposition of, attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value."

The first count in the indictment outlines the plan to defraud, which plan is incorporated by reference in each of the other six counts. The fraudulent design is alleged as follows. Between 1934 and 1941 appellant intended to defraud a certain class of persons, including eight named individuals. He bought gold mining claims in Josephine County, Oregon, and called them the Suetter Placer Mines. In 1937 he executed a trust agreement to the effect that he would administer the claims for the benefit of purchasers of units in the Suetter Placer Mines, and that each purchaser was entitled to a pro rata share of the income from the mines. To induce persons to buy such units and to lull them into a false sense of security with respect to their investments so that appellant could convert to his own use a large part of the investors' money and other property, and to induce persons to retain their interests, appellant made various false and fraudulent representations by means of letters, other written communications, and oral statements. He represented falsely that he had absolute title to the Suetter Placer Mines; that he would keep an accurate set of accounts; that employees of the Link-Belt Company of Chicago had agreed to invest $80,000 in the mines; that all of the money invested would be used to buy machinery and to defray expenses in connection with the operation of the mines; that investors would realize large returns on their investments; that the units were a safe, sound and conservative investment; that engineers hired to test the properties had submitted a favorable report; that production would be commenced by the fall of 1937; that appellant had a good deal of practical experience in mining and had been financially successful; that he had invested over $50,000 of his own funds in the mines; that an investment of $300,000 would bring returns of from one to three million dollars within three years; that he would begin shipping gold to the mint within ninety days after December, 1938; that the mines would pay dividends of 20% of $100,000,000, that the property of the mines was proven; and that investors would never lose the money invested.

Counts one and two, involving mail fraud, are based on two letters mailed to Paul P. Rhode, one of those listed among the persons to be defrauded. The remaining counts, involving fraud in the sale of securities, are based on various communications — counts three and four on two letters to Francis J. Beckman, count five on a telegram to Stephen A. Bubacz, and counts six and seven on two letters from and to Rhode.

The jury found appellant guilty on counts three, four, six and seven, and not guilty on the other counts. Upon a motion for a new trial the court dismissed counts three and four. Thereafter, appellant was sentenced to a two and one-half year term of imprisonment under each of counts six and seven, the sentences to run concurrently.

The evidence discloses the following facts. Phillip Suetter in 1927 was a trader in horses and livestock. He became bankrupt in 1933 and thereafter went into the business of mining. In 1934 he purchased placer mining claims in Josephine County, Oregon. Ralph T. Montag largely financed the acquisition of the property and its early operation. In return Montag received a half-interest in the claims and Suetter's promissory note for $10,000 secured by a mortgage on the claims. When Montag could contribute no more, Suetter sought funds from others and wrote that he would return a large part of Montag's investment from the first of the funds received. Montag testified that Suetter had made no misrepresentations to him and that he had been aware of most of Suetter's doings.

In order to raise additional needed capital, Suetter determined to sell certificates of ownership in his mines in the forms of units governed by a trust agreement. In that document Suetter declared that he had taken title as trustee to listed mining claims, that the claims should consist of undivided units, and that he should have the management of the properties and should keep accurate accounts of income and disbursements. He specifically agreed to use the proceeds from the sale of units for the purchase of machinery and equipment necessary to the operation of the properties. All purchasers of units had seen copies of the trust agreement before they invested in Suetter's project.

Ed Hogan tried to obtain financial help for Suetter in the east. For this service Suetter promised to allow him a 20% commission on the sums raised and a 5% interest in the mine. Hogan succeeded in selling several units.

Suetter followed Hogan to Chicago. There, he entered into negotiations with William Phillips, sales engineer for the Link-Belt Company, contemplating the purchase of mining equipment. He told Phillips that he was "properly financed." Phillips had gravel from the mines tested as to metallic content and found the results "very satisfactory." Phillips praised the properties highly to certain of Suetter's prospects, showed them pictures of a dredge similar to the one Suetter planned to buy, and gave Suetter a photographic cut of that dredge, which cut Suetter used at the head of the certificates for trust units. After making a trip to the properties and finding them undeveloped, Phillips requested, and received, the return of all money invested by employees of his company.

Suetter told Beckman that he was sole owner of the claims and had clear title thereto. He explained that he had returned money to the Link-Belt employees because he had decided not to buy any equipment from that company. Beckman discussed the properties with Phillips and with his personal mining engineer, and over a period of years invested a large sum in the mines. In March, 1938, Suetter and Beckman signed an instrument supplemental to the trust agreement. Therein the former promised to send all net proceeds from the mines to Beckman until the latter's promissory notes issued on the mining project were fully paid, stated that he owned clear title to the premises and declared that he had invested $95,000 of his personal funds in the mines. In the instant case Beckman testified that Suetter was to pay expenses and buy machinery with the money advanced to him. By 1938 Beckman knew that Montag had an interest in the mine, but Suetter informed him that Montag's share came from Suetter's interest. Upon learning that Suetter had acquired other properties, Beckman criticized the fact that operations were not confined to the original, or Josephine, properties. Suetter remarked: "The Josephine is no good. There are too many boulders. You can't work the Josephine." In 1939 Beckman sued Suetter for an accounting and an injunction. A settlement was reached under which Suetter turned over to Beckman all of his mining properties except the Josephine mines, and Beckman assumed the claims of Rhode and Bubacz.

Rhode invested $30,000 in trust units only after a careful study of the trust agreement, which he found "satisfactory." He had discussed the mines and the trust agreement with Bubacz before he first met Suetter, at which time he...