U.S. v. Jones

• Decision Date: 14 November 1983
• Docket Number: 82-1464 and 82-1474,Nos. 82-1458,s. 82-1458
• Citation: 712 F.2d 1316
• Parties: Fed. Sec. L. Rep. P 99,447 UNITED STATES of America, Plaintiff-Appellee, v. Frank E. JONES, James R. Jamerson, and Richard Eugene Webber, Defendants- Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1316

712 F.2d 1316

Fed. Sec. L. Rep. P 99,447

UNITED STATES of America, Plaintiff-Appellee, v. Frank E. JONES, James R. Jamerson, and Richard Eugene Webber, Defendants- Appellants.

Nos. 82-1458, 82-1464 and 82-1474.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 7, 1983.

Decided Aug. 9, 1983.

Certiorari Denied Nov. 14, 1983.

See 104 S.Ct. 434.

Francis J. Burke, Jr., Kenneth R. Parker, Asst. U.S. Attys., Stephen L. Day, Sp. Asst. U.S. Atty., Seattle, Wash., for plaintiff-appellee.

Stephen K. Strong, David Allen, Allen R. Bentley, Asst. Federal Public Defender, Seattle, Wash., for defendants-appellants.

Appeal from the United States District Court for the Western District of Washington.

Before WRIGHT, CHOY and NELSON, Circuit Judges.

EUGENE A. WRIGHT, Circuit Judge:

This case presents several issues. Foremost among them is whether defendants' sale/leaseback transactions were "securities" within the meaning of the securities fraud statute, 15 U.S.C. § 77q. We hold that they were and affirm the convictions on all counts.

FACTS

In 1976, Jones brought Jamerson into Evergreen Investors, a trucking brokerage company that was experiencing financial difficulties. To alleviate Evergreen's difficulties, Jones and Jamerson joined several smaller investors in purchasing Krimbel Trucking, a company hauling loads between Washington and California.

Jamerson became Krimbel's president and Jones its vice-president. Jones handled the financial arrangements for the company while Jamerson, who had been a truck driver and owner of his own trucking company, assumed responsibility for Krimbel's day-to-day operations.

Misapplication of Funds

Early in 1977, Jones and Jamerson began to draw checks on Krimbel's account to pay obligations of Evergreen. They made payments from Krimbel's account on Evergreen's commercial loans and extended to it "interest-free" loans.

Later in 1977, Webber joined Jones and Jamerson in depleting Krimbel's assets. The defendants used Krimbel Trucking to haul cedar shakes for companies owned by Jones, Jamerson, and Webber. Krimbel extended credit to those companies and never received payment for the loads it hauled. After replacing Jamerson as Krimbel's president, Webber joined Jones in drawing Krimbel checks for improper purposes, including a payment on his personal mortgage.

Sale/Leaseback Transactions

Although Krimbel was operating at a loss during 1977, Jones approached prospective investors. He told them that Krimbel was undergoing great expansion and was about to secure a lucrative paper-hauling contract.

Jones convinced many to participate in investments involving tractors and trailers. He presented to potential investors a "package" that allowed them to buy equipment from Evergreen and lease it back to Krimbel. Jones assured investors that they were paying a fair price for the equipment and that Krimbel needed the equipment because of its unprecedented expansion.

Under the terms of the package, investors made low down payments for the trailers and financed the balance through bank loans, usually from the Commercial Bank of Seattle. Krimbel then made the monthly payments on its lease obligations to the bank, which applied part of the payment to the investors' loan balances and deposited the remainder to their accounts.

The package was attractive to investors because Krimbel's monthly lease payments Jones collected a substantial commission on each trailer sale and misrepresented Evergreen's purchase price of the trailers, concealing a substantial markup. Although Jones and Jamerson assured investors that Krimbel was growing rapidly, its increase in business did not require that it lease as many trailers as it did.

                exceeded the investors' obligations on the bank loans.   In addition, the package gave Krimbel a purchase option at the end of the lease, which would increase investors' return if exercised.   To investors, the success of the sale/leaseback transactions depended on Krimbel's ability to make monthly payments and its exercise of the purchase option
                

Because of its operating losses and depletion of funds, Krimbel could meet its lease obligations on the trailers only by raising additional capital. Jones and Jamerson executed additional sale/leaseback transactions and, in the late summer of 1977, sold stock in Krimbel to existing shareholders and new investors. Jones and Jamerson did not disclose Krimbel's weak financial position or the terms of their original purchase of Krimbel.

In October of that year, Krimbel began to default on its lease payments to Commercial Bank. Soon thereafter, several truckers who were creditors of Krimbel forced it into bankruptcy. Although some investors recovered the trailers they had leased to Krimbel, they discovered that resale of the equipment did not cover the remaining loan balances. They experienced substantial losses on the sale/leaseback transactions and those who bought stock found it was worthless.

An Interstate Commerce Commission investigation of Krimbel's bankruptcy led to the indictment of the three defendants for misapplication of funds. After uncovering additional facts, the government sought and received a superseding indictment that included securities and mail fraud charges against Jones and Jamerson.

Jones and Jamerson were convicted of mail fraud and securities fraud in connection with the sale/leaseback transactions and the purchase of Krimbel. Either separately or together, all three defendants were convicted on most of the misapplication of funds charges. The jury convicted them of conspiracy and found Webber guilty of bankruptcy fraud, a conviction he has not challenged on appeal.

SUFFICIENCY OF THE EVIDENCE

Jamerson and Jones challenge the sufficiency of the evidence of mail and securities fraud. They contend that the mailings were not sufficiently connected to the fraudulent scheme to establish the elements of either crime.

Mail Fraud

In Counts 1 through 9, the government relied on bank mailings to charge Jamerson and Jones with mail fraud under 18 U.S.C. § 1341. As part of the sale/leaseback transactions, Commercial Bank (or in some cases another bank) mailed notices of lease payments to investors upon receipt of monthly payments from Krimbel.

Jamerson and Jones contend that the notices of lease payments were "routine business mailings" that cannot constitute mail fraud. They note that the bank sent the notices, that the information in the mailings was entirely truthful, and that the mailings were made long after the fraudulent sale/leaseback transactions were executed.

It is of no consequence that defendants did not mail the notices. The Supreme Court held long ago that one "causes" a mailing for purposes of 18 U.S.C. § 1341 if one acts with the knowledge that the use of the mails will follow in the ordinary course of business. Pereira v. United States, 347 U.S. 1, 8-9, 74 S.Ct. 358, 362-63, 98 L.Ed. 435 (1954). When defendants caused Krimbel Trucking to make payments for unnecessary trailer leases, they knew that the banks would use the mail to notify investors of the payments.

Nor does it aid defendants that the notices of lease payments were truthful or were mailed after the agreements were signed. The mailings here follow the classic pattern of a "lulling" scheme, first recognized Several investors testified that they relied on the mailings as demonstrating that Krimbel was doing well and that they had made a good investment. Indeed, when the mailings stopped, at least one investor called authorities, which prompted further investigation into Krimbel's affairs.

                by the Supreme Court in  United States v. Sampson, 371 U.S. 75, 83 S.Ct. 173, 9 L.Ed.2d 136 (1962).   In such a scheme, the mailing reassures the victim that all is well, discouraging him from investigating and uncovering the fraud.   Id. at 80-81, 83 S.Ct. at 175-76
                

Defendants' reliance on United States v. Maze, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603 (1974), is misplaced. There the defendant stole a credit card and used it to charge items in several states. Although the merchants who accepted the card mailed invoices to the credit card company to allow billing of the party named on the card, the Court ruled that those mailings were of no interest to the defendant and did not further the fraud. Id. at 402, 94 S.Ct. at 649.

Maze distinguished Sampson but did not overrule it. Id. at 403, 94 S.Ct. at 650; see United States v. Love, 535 F.2d 1152, 1159 (9th Cir.), cert. denied, 429 U.S. 847, 97 S.Ct. 130, 50 L.Ed.2d 119 (1976). Unlike the defendant in Maze, the defendants here had an interest in the bank mailings which lulled investors into complacency regarding Krimbel. The mailings furthered the fraud and we affirm the convictions on these counts.

Defendants have raised no arguments bearing on the mail fraud convictions in Counts 10, 11, and 12. These mailings contained fraudulently obtained guarantees and false statements regarding the purchase prices of trailers. Obviously they furthered the fraudulent scheme, and we affirm the convictions on these counts as well.

Securities Fraud

Use of the mails is one basis for federal jurisdiction over securities fraud. See United States v. Brown, 555 F.2d 336, 340 (2d Cir.1977). The government relied on the notices of lease payments mailed by Commercial Bank to obtain jurisdiction over the securities fraud charges in counts 13 and 14. The government argues that the sale/leaseback transactions were themselves securities and that the use of the mails was directly connected to the fraud surrounding the sale/leaseback arrangements.

We have not considered previously whether sale/leaseback transactions can constitute securities, nor have we found helpful decisions from other circuits. The leading case for determining whether an investment is a security is SEC v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). The Court there explained that a security...