U.S. v. Cohen, 74-1634

• Decision Date: 28 May 1975
• Docket Number: No. 74-1634,74-1634
• Parties: UNITED STATES of America, Appellee, v. Jerry Morris COHEN, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1358

516 F.2d 1358

UNITED STATES of America, Appellee, v. Jerry Morris COHEN, Appellant.

No. 74-1634.

United States Court of Appeals Eighth Circuit.

Submitted March 12, 1975.

Decided May 28, 1975.

Murry Marks, Clayton, Mo., for appellant.

Richard Coughlin, Asst. U. S. Atty., St. Louis, Mo., for appellee.

Before GIBSON, Chief Judge, CLARK, Associate Justice, ^* and LAY, Circuit Judge.

Mr. Justice CLARK.

Appellant Jerry Morris Cohen was indicted on March 20, 1974, along with his son, Boyd Cohen, on 22 counts of mail fraud, 18 U.S.C. § 1341. The younger Cohen was never apprehended, and appellant proceeded to trial alone on July 29, 1974, in the Eastern District of Missouri. The gravamen of the Government charge was that appellant conceived, established, and operated a nationwide "rack sales" scheme to defraud, involving the use of the mails. Cf. United States v. Nance, 502 F.2d 615 (8th Cir. 1973). At the close of the Government's case, the district court entered a judgment of acquittal on seventeen of the counts. The defendant presented no evidence, and the jury returned a guilty verdict on the five remaining counts.

I.

The indictment charged that appellant conducted a scheme to defraud between October 1968 and December 1970 under the name "International Sales Company" (INSCO) and subsequently between January 1971 and February 1972 under the name "United Marketing, Ltd." The principal ingredient of the scheme was the sale of dealerships for the marketing of national brand merchandise through the use of wire rack display stands to be located in areas of heavy pedestrian traffic, such as supermarkets, drug and discount stores, and other retail establishments. The alleged fraud consisted of the misrepresentation of: (1) the quality of the locations where the wire racks were to be placed; (2) the terms under which the dealerships were sold; and (3) the profits to be derived from their operation. The Government's position was that, from start to end, appellant was the guiding star of the fraud, even though a man named Sid Lyner served initially as the titular head of the operation and, later, Boyd Cohen, appellant's son, served as president during the period in which appellant was incarcerated for tax evasion. The Government emphasized that appellant, after serving his prison sentence, promptly returned to the active management of the operation, changed its name and location, and continued the identical scheme.

At trial, appellant's original partner, Sid Lyner, who testified under a grant of immunity, described the origins of INSCO. It was in the summer of 1968 that appellant approached Lyner with a proposition involving rack sales; Lyner, who wanted to get out from under an unsuccessful automobile transmission repair business, readily agreed. Soon thereafter, the pair went to a housewares show in Chicago where appellant contacted several manufacturers of national brand products with reference to the sale of their products through display racks. Upon their return to St. Louis, Missouri, Lyner and Cohen began advertising dealerships for the sale of 3-M tape products, but abandoned the plan when arrangements with the manufacturer failed to materialize.

In October of 1968, at the specific instance of appellant, INSCO was incorporated in the state of Missouri with Lyner, Lyner's wife, and appellant's wife as the original incorporators. Lyner was listed as the first president; Mrs. Cohen as the secretary-treasurer. Appellant assumed no official title in the corporation because, as he told Lyner, he feared that the Government might attach his interest in the operation in order to satisfy various income tax debts. Despite his lack of official title, appellant was the functional head of the entire operation: contacting manufacturers, preparing the sales pitch, hiring and firing company officials, and receiving the lion's share of the profits. ¹

The first step in INSCO's plan of operation ² was to place advertisements in newspapers throughout the country, offering dealerships for sale and casting INSCO as the authorized representative of the national brand manufacturers named in the advertisement. Initially these ads were prepared by appellant, but that task was turned over to his son early in 1969. In fact, INSCO was never an authorized agent or representative of these manufacturers; rather, appellant had simply made an arrangement with the manufacturers of a number of well-known products whereby the manufacturers agreed to sell to INSCO as a wholesaler and to send a prepackaged shipment of retail products and wire display racks to INSCO's customers upon receipt of cash prepayment from INSCO. ³

As described by appellant's ads, each dealership was to consist of an inventory of prepackaged products, racks, and a "route" of varying size, up to twenty "locations" in retail outlets where the racks were to be set up. As a matter of course, when someone answered the advertisements, a form letter was sent out acknowledging the inquiry and a salesman dispatched to deliver the prepared "pitch". The key elements of the presentation were (1) that the company would provide "high traffic" locations of some 200 to 500 persons per day; (2) that the dealership would provide earnings of from $400 to $800 per month or higher; and (3) that the company guaranteed to buy back any unsold products at the end of six months (later extended to 18 months).

If after hearing the sales pitch, a prospective dealer was interested in becoming a dealer, he was told that an earnest money deposit, usually $800, would be necessary to secure the distributorship. The prospective dealer would then make out the check and fill out a form so that the company's "careful" screening of applicants could be facilitated. A letter of agreement or sales contract would be executed and submitted to the home office in St. Louis, ostensibly for screening. In fact, no credit checks or other screening ever occurred. Once the earnest money deposit and the letter of agreement were received at the home office, another form letter would be sent out congratulating the new dealer and advising him of his approval. The letter would also remind him that the balance of his payment for the dealership which seems to have approximated INSCO's actual cost for the prepackaged shipment was due before any merchandise or racks would be sent. Only at that point would one of the company's "marketing engineers" be sent to secure locations in the dealer's service area; but no surveys or other marketing analyses were ever undertaken. Few, if any locations were furnished in sales areas with a daily pedestrian traffic of 200-500.

Although most of appellant's customers did eventually receive the merchandise they had paid for, in some cases they did not, particularly in late 1970, toward the end of INSCO's life. More importantly, appellant's companies failed to provide the essential part of its package: quality locations that would support its profit projections. In theory, dealers were to keep as profits all of their income from sales over the commissions charged by the retail outlets for the privilege of allowing the racks to remain on their busy premises; dealers had only to service their racks on a regular basis to reap their profits. In reality, dealers uniformly complained that the locations provided by appellant's companies did not fit the "high traffic" sales-producing descriptions contained in the advertising materials and sales pitches. Rather than the bustling supermarkets and drug stores stressed by appellant's salesmen, the locations were more typically out-of-the-way gas stations, sleepy-hollow stores, and seedy skid row establishments. In many cases, no locations at all were ever supplied. Moreover, when dealers complained, the guaranteed buy-back provision of the contract was regularly observed only in the breach. When disgruntled dealers contacted INSCO, they were stalled along with promises never kept and reassurances that were never honored. Various form letters were sent out in sequence, putting off the dealers' inquiries and promising, variously, that the company would find new locations, that the dealer should be patient because the company was having internal problems, and that the company would honor the buy-back agreement. In fact, no followups were ever made to these "lulling" letters. No new locations were ever provided; no buy-backs were ever made; and, indeed, dealers who attempted to contact INSCO eventually had their letters returned unopened or found the company's phones disconnected.

In presenting its case, the Government introduced substantial evidence, including testimony of key INSCO employees the office manager, locations manager, "sales consultants," and operations manager as well as testimony of officials from the various manufacturers, which the jury could have credited in concluding that the entire operation from its birth to its death was controlled and inspired by appellant. Certainly INSCO was conceived, established, and personally operated by appellant from early in 1968 until his departure for prison in June of 1969. Although appellant was imprisoned on federal tax violations from that date until November of 1970, his responsibility for the operation did not end. Within four months of the time appellant began serving his tax evasion sentence, Lyner was out as president of INSCO and Boyd Cohen had taken his place. Importantly, the scheme to defraud did not change one whit.

During appellant's 18-month absence, INSCO continued its operation in the same manner under Boyd Cohen's stewardship as it had under appellant's direct control. To be sure, business decisions were made by Boyd Cohen apparently without consulting appellant, but these were relatively minor matters: a new product here, a new manager for some department there. Appellant's basic plan of operation remained in force, and its constituent parts indelibly bore his stamp. The...