U.S. v. Brainard, s. 80-5079

• Decision Date: 13 January 1983
• Docket Number: Nos. 80-5079,80-5080 and 81-6913,81-6912,s. 80-5079
• Citation: 690 F.2d 1117
• Parties: 11 Fed. R. Evid. Serv. 1434 UNITED STATES of America, Appellee, v. Daniel King BRAINARD, Appellant. UNITED STATES of America, Appellee, v. Halton Q. BITTICK, Jr., Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1117

690 F.2d 1117

11 Fed. R. Evid. Serv. 1434

UNITED STATES of America, Appellee, v. Daniel King BRAINARD, Appellant.

UNITED STATES of America, Appellee, v. Halton Q. BITTICK, Jr., Appellant.

Nos. 80-5079, 81-6912, 80-5080 and 81-6913.

United States Court of Appeals, Fourth Circuit.

Argued March 4, 1982.

Decided Oct. 7, 1982.

Rehearing and Rehearing En Banc Denied Jan. 13, 1983.

John J. Tigue, Jr., New York City (William B. Wachtel, Kostelanetz & Ritholz, New York City, on brief), and Rodney A. Guthrie, Fayetteville, N. C., for appellants.

Allen Holt Gwyn, Jr., Sp. Asst. U. S. Atty., Douglas Cannon, Asst. U. S. Atty., Greensboro, N. C. (Kenneth W. McAllister, U. S. Atty., Greensboro, N. C., on brief), for appellee.

Before WIDENER and MURNAGHAN, Circuit Judges, and POTTER, ^* District Judge.

MURNAGHAN, Circuit Judge: ^**

Daniel King Brainard and Halton Q. Bittick, Jr. appeal from their convictions on numerous counts related to alleged participation in a fraudulent investment scheme. We reverse and remand for a new trial.

I.

Brainard and Bittick were owners of National Executive Planners, Inc. (NEP), a small investment company located in Greensboro, North Carolina. Brainard had dealt with Sheldon Moss, a Chicago businessman, on several occasions. In July, 1973, Moss telephoned Brainard and proposed that NEP offer to its clients the opportunity to make loans to Moss' company, Television Marketing Corporation (TVM), at an annual interest rate of twelve percent.

Brainard flew to Chicago, where Moss gave him a tour of the TVM facilities and further explained the proposal. Moss claimed that TVM distributed and marketed products sold by national retail stores, and that, because retailers generally paid for merchandise from thirty to ninety days after it was received, TVM experienced a cash flow problem. In order to avoid paying high interest charges to banks for interim financing, Moss suggested, TVM would borrow money from NEP clients, and secure the loans by assignments of accounts receivable from well known national retailers.

Brainard discussed the proposal with Bittick and took several measures to investigate TVM. The extent of the investigation is disputed; it is at least clear that Brainard and Bittick obtained a Dun and Bradstreet report, but there is conflicting evidence of the extent to which other information was obtained. In any event, it was decided to offer the opportunity to invest in TVM to NEP clients.

Investment in TVM was popular, and it gradually became a large part of NEP's business. Brainard was active in sales for NEP, and Bittick, although not involved in sales, promoted the investments as well. At the outset investors received the interest payments they had been promised, and were repaid when the loans matured. In addition, most of them received what purported to be Uniform Commercial Code forms verifying the assignments of accounts receivable as security for the loans.

By late 1974, TVM's legitimate marketing activities were curtailed and the company was reduced to a shell through which Moss continued to funnel investors' money. Moss never filed with the Secretary of State the UCC forms he sent to investors, and there were no accounts receivable to secure the loans.

As the scheme progressed, the relations between Moss, Brainard and Bittick developed. In early 1975 NEP experienced financial problems, and Moss lent Brainard and Bittick $13,800. Later that year he contributed another $36,000 to NEP, and in payment for the loans he was given an interest in NEP.

In the interim, Bittick had purchased a controlling interest in Investors Financial Planning, Inc. (IFP), a licensed broker-dealer corporation. Brainard and Moss contributed to Bittick's payments for IFP, and were beneficial owners of the corporation. In 1976 Bittick traded his interest in NEP for $20,000 plus Brainard's release of his beneficial interest in IFP. ¹ NEP salesmen were registered with IFP, and through it sold registered securities.

As a broker-dealer, IFP was required to file reports with the SEC when any change of ownership occurred. In April, 1976, Bittick, as president of IFP, verified SEC form BD and filed it with the SEC to reflect a change of ownership. The form did not list Sheldon Moss as a beneficial owner of IFP, and did not mention that Moss had previously been enjoined from selling unregistered securities. ²

On September 28, 1978, the Secretary of State of North Carolina issued a cease and desist order directing Moss to stop selling investments in TVM. The SEC and United States Postal Service soon began investigations, and the fraudulent nature of the TVM scheme was revealed. Brainard and Bittick agree that the scheme was fraudulent, but maintain that they, like everyone else, were unwittingly duped by Moss.

Brainard, Bittick, Moss, and Sheldon Rothman, a TVM officer, were indicted on January 28, 1980, on eighteen counts of mail fraud in violation of 18 U.S.C. §§ 1341 and 2, and on one count of making a materially false and misleading statement to the SEC in violation of 15 U.S.C. § 78a et seq. and 18 U.S.C. § 2. Brainard was deleted from Count 19 in a superseding indictment filed on February 25, 1980. Moss pleaded guilty to all charges, and charges against Rothman were dismissed. Brainard and Bittick were tried to a jury and convicted on Counts 3 through 13, 15, and 18; Bittick was also convicted on Count 19. Count 14 was dismissed at the conclusion of the government's case, and Count 16 was dismissed while the jury deliberated. The jury returned not guilty verdicts on Counts 1, 2, and 17. ³

II.

At the outset we address appellants' contention that the evidence was insufficient to support a guilty verdict on the mail fraud counts, ⁴ since that contention, if accepted, would require us to enter a judgment of acquittal rather than merely to remand for a new trial.

Appellants argue that the evidence did not support an inference that they had the specific intent to defraud necessary for a mail fraud conviction. E.g., United States v. Pearlstein, 576 F.2d 531, 537 (3d Cir. 1978); United States v. Payne, 474 F.2d 603, 604 (9th Cir. 1973). Viewing the evidence in the light most favorable to the government, Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942), United States v. Bobo, 477 F.2d 974, 989 (4th Cir. 1973), cert. denied, 421 U.S. 909, 95 S.Ct. 1557, 43 L.Ed.2d 774 (1975), we find that the evidence was sufficient to support an inference that Brainard and Bittick had the requisite intent to defraud.

Several elements of the scheme were sufficiently obvious to support an inference that Brainard and Bittick knew it was fraudulent. The UCC forms provided to investors were xeroxed copies which bore no evidence of filing or recordation, no signature of the secured party, and often no signature of the debtor. Although accounts receivable were ostensibly paid to TVM by Sears within 180 days, victims received only one UCC form, even if their investments lasted three or more years. When investors complained that they had not received their UCC forms the delivery dates were changed, and in some instances no date was promised, at Brainard's direction. Some investors who wanted their money back were repaid in piecemeal fashion.

Additionally, there was testimony that appellants, in describing TVM to potential investors, embellished their description of Brainard's investigation of the firm. They falsely assured NEP salesmen that a review of Moss' finances showed he had a substantial net worth. An inconclusive Dun and Bradstreet report was described by appellants as showing TVM's creditworthiness.

Finally, Moss' other dealings with appellants could have provided further support for an inference that they intended to defraud investors. When NEP had financial difficulties, Moss provided $49,800 to maintain the company, and in return acquired a financial interest in it. Brainard had previously sold unregistered Golden West Securities marketed by Moss as part of a similar scheme.

The aggregation of circumstantial evidence offered by the government was sufficient to permit a finding that Brainard and Bittick knowingly participated in the fraud. Accordingly, we proceed to appellants' other allegations. ⁵

III.

In his closing argument the Assistant United States Attorney stated that Bittick had told Brainard, in essence, that TVM was "a downright fraud" and "a hairbrain scheme," that "there is something fraudulent here" and "something wrong here," and that "this thing stinks." Bittick's actual statements were "that normally the higher the return, the higher the risk," and that until he knew more about TVM he would not recommend it to his clients. Appellants contend that the government's misquotations were prejudicial.

The closing arguments of counsel are "limited to the facts in evidence and reasonable inferences flowing therefrom." United States v. Ojala, 544 F.2d 940, 946 (8th Cir. 1976). See also, e.g., United States v. Bell, 506 F.2d 207, 225-26 (D.C.Cir.1974). Here, the prosecutor went well beyond arguing which inferences were reasonable. Instead, he went so far as to attribute to Bittick on five occasions unequivocal inculpatory statements with respect to the only disputed issue in the case. Particularly in a case where the evidence is voluminous and the facts complex, we cannot excuse such prosecutorial distortion. The misquotations "may well have become so firmly implanted on the jurors' minds as to cloud the actual testimony." Wallace v. United States, 281 F.2d 656, 668 (4th Cir. 1960) (misquotation of government witness). See also United States v. Guajardo-Melendez, 401 F.2d 35, 40 (7th Cir. 1968) (where the prosecutor attributed to a government witness testimony which inculpated the defendant, and the government witness had not so testified, a new trial was required).

United States v. Callanan, 450 F.2d 145, 151 (4th Cir. 1971), relied on by the dissent,...