U.S. v. Cook, No. 77-5497

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Writing for the Court: Before THORNBERRY, RONEY and HILL; THORNBERRY
• Citation: 573 F.2d 281
• Decision Date: 19 May 1978
• Docket Number: No. 77-5497
• Parties: Fed. Sec. L. Rep. P 96,442 UNITED STATES of America, Plaintiff-Appellee, v. Larry N. COOK, Defendant-Appellant.

Page 281

573 F.2d 281 Fed. Sec. L. Rep. P 96,442 UNITED STATES of America, Plaintiff-Appellee,
v.
Larry N. COOK, Defendant-Appellant. No. 77-5497. United States Court of Appeals,
Fifth Circuit. May 19, 1978.

Page 282

Gary D. Jackson, Emmett Colvin, Dallas, Tex., for defendant-appellant.

Kenneth J. Mighell, U. S. Atty., William O. Wuester, III, Raymond L. Betts, Jr., Asst. U. S. Attys., Fort Worth, Tex., Shirley Baccus-Lobel, Asst. U. S. Atty., Dallas, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before THORNBERRY, RONEY and HILL, Circuit Judges.

THORNBERRY, Circuit Judge:

After a plea of guilty, the appellant, Larry N. Cook, was convicted of fraud in the offer of sale of securities in violation of 15 U.S.C. §§ 77q(a), 77x, and 18 U.S.C. § 2, and of mail fraud in violation of 18 U.S.C. §§ 1341, 2. The trial judge sentenced Cook to five years' imprisonment for each offense. ¹ On this appeal, Cook challenges only the jurisdiction of the trial court to impose a sentence for the securities count. Cook argues that the trial court lacked jurisdiction over the securities count because the alleged fraud was committed solely upon foreign investors and the fraud had no impact upon either the domestic markets or domestic investors. ²

I.

The indictment charged that Cook and his codefendants, while operating out of Dallas, Texas, defrauded European investors by operating a Ponzi scheme. ³ The heart of the scheme was the offer and sale of fractional undivided working interests in oil and gas wells located in the United States.

Cook and his codefendants would place false and misleading advertisements in various European newspapers and periodicals. The advertisements would extol the virtues of investments in American oil and would falsely promise high monetary gain. Specifically, in other sales material, Cook and his codefendants, promised a 39.8% Annual return on Ohio oil wells, 47% Return on Texas wells, 56% Return on West Virginia wells, and a 39% Return on Kentucky wells. These returns were supposedly based upon the production figures for operating American oil wells, however, the production figures were grossly misstated and the actual returns, if any, were far from the promised figure.

Page 283

Once an European investor decided to purchase an interest in the American oil wells, a contract was signed in Europe by the investor and a confederate of Cook. The contract would be returned to Dallas and the agreement was recorded in the United States.

As in a classic Ponzi scheme, payments based on the false production figures were actually made to some initial investors. These payments, which were financed from capital generated by subsequent investors, also served to attract new investors. Cook and his confederates also developed investor interest by having potential investors travel to the United States and inspect various Texas oil wells.

In December 1976, the Ponzi scheme fell through and Cook's guilty plea and this appeal followed.

II.

On this appeal, Cook contends that the district court lacked jurisdiction over the subject matter under the securities acts because the victims of his fraud were foreign investors and Congress did not intend to protect foreign investors.

This court is aware of the legal developments involving international fraud and the puzzling questions posed by some transactions with only a marginal United States nexus. See Des Brisay v. The Goldfield Corp., 549 F.2d 133 (9 Cir. 1977); Securities and Exchange Commission v. Kasser, 548 F.2d 109 (3 Cir. 1977), cert. denied sub nom. Churchill Forest Industries (Manitoba) Ltd. v. SEC, 431 U.S. 938, 97 S.Ct. 2649, 53 L.Ed.2d 255 (1977); Straub v. Vaisman & Co., 540 F.2d 591 (3 Cir. 1976); Bersch v. Drexel Firestone, Inc., 519 F.2d 974 (2 Cir. 1975), cert. denied, 423 U.S. 1018, 96 S.Ct. 453, 46 L.Ed.2d 389 (1975); IIT v. Vencapp, Ltd., 519 F.2d 1001 (2 Cir. 1975); Travis v. Anthes Imperial Ltd., 473 F.2d 515 (8 Cir. 1973); Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326 (2 Cir. 1972); Schoenbaum v. Firstbrook, 405 F.2d 200 (2 Cir.),...