U.S. v. Kaminski

• Decision Date: 24 August 1982
• Docket Number: Nos. 81-1200,s. 81-1200
• Citation: 692 F.2d 505
• Parties: UNITED STATES of America, Appellee, v. Kenneth W. KAMINSKI, Appellant. UNITED STATES of America, Appellee, v. Stephen E. MOUNT, Appellant. UNITED STATES of America, Appellee, v. George P. FAHR, Appellant. UNITED STATES of America, Appellee, v. John M. BROWNRIGG, Appellant. UNITED STATES of America, Appellee, v. Douglas C. PAYNE, Appellant. to 81-1204.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 505

692 F.2d 505

UNITED STATES of America, Appellee, v. Kenneth W. KAMINSKI, Appellant.

UNITED STATES of America, Appellee, v. Stephen E. MOUNT, Appellant.

UNITED STATES of America, Appellee, v. George P. FAHR, Appellant.

UNITED STATES of America, Appellee, v. John M. BROWNRIGG, Appellant.

UNITED STATES of America, Appellee, v. Douglas C. PAYNE, Appellant.

Nos. 81-1200 to 81-1204.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 8, 1982.

Decided July 29, 1982.

Rehearing and Rehearing En Banc Denied Aug. 24, 1982.

Douglas W. Thomson Law Firm, Douglas W. Thomson and Robert D. Goodell, St. Paul, Minn., for Kaminski.

Jack S. Nordby, Minneapolis, Minn., for Mount, Fahr and Brownrigg.

Meshbesher, Singer & Spence, Ltd., Ronald I. Meshbesher, Carol Grant, Minneapolis, Minn., for Payne.

James M. Rosenbaum, U. S. Atty., Douglas A. Kelley, Asst. U. S. Atty., Minneapolis, Minn., for appellee.

Before HEANEY, McMILLIAN and ARNOLD, Circuit Judges.

ARNOLD, Circuit Judge.

Defendants Kenneth W. Kaminski, Stephen E. Mount, Douglas C. Payne, George P. Fahr, and John M. Brownrigg appeal from their various convictions on an indictment containing 14 counts of mail fraud and one count of conspiracy to commit mail fraud. See 18 U.S.C. Secs. 1341, 371. The indictment alleged that from January of 1978 to September of 1979 the defendants conspired to defraud customers of Federal Gold and Silver, a precious-metals brokerage company, and that they committed acts of mail fraud in the process. All defendants were charged on all counts. The convictions appealed here were based on jury verdicts which came after some 30 days of trial spanning a period of three months. ¹ All defendants were convicted on mail fraud charges, and Kaminski and Mount were convicted on the conspiracy charge. ²

All of the defendants have appealed their convictions and point out numerous grounds for reversal that deserve discussion. ³ As one might expect, there is considerable overlap in the arguments they present. All five defendants argue in some fashion that (1) there was insufficient evidence to sustain their convictions; (2) there were repeated instances of prosecutorial misconduct which denied them a fair trial; and (3) the District Court erred in not granting their motions for severance. In addition defendants Mount, Fahr, and Brownrigg claim that it was plain error for the District Court to allow an alternate juror to accompany the jury during its deliberations, and to be later substituted, despite the consent of all defendants. After full consideration of these arguments we conclude that, with three exceptions (count IX as to Kaminski and counts IV and XII as to Mount), the judgments of the District Court must be affirmed.

I. Factual Background

A. The Operation of FGS: December 1976--September 1979

The charges in this case grew out of the operation of an investment company called Federal Gold and Silver (FGS) located in Bloomington, Minnesota. What follows is a summary of the facts as the jury could have found them on this record, allowing for all reasonable inferences in support of the verdict. FGS was incorporated in December of 1976 by defendant Kaminski who ostensibly put up $5,000 of the initial capital to start the company. There were two other original investors in the company, a Mr. Ulrich, who invested $10,000, and a Mr. Swalinkavich, who contributed $5,000. ⁴ Soon after incorporation Kaminski hired Mount as an accountant. A bookkeeping entry dated February 4, 1977, showed an investment of $5,000 with the initials "SM" next to it. Presumably this entry reflects an investment by defendant Stephen Mount, though Ulrich and Swalinkavich thought Kaminski had invested the money. The day-to-day management of FGS was left to Kaminski by mutual agreement of the three investors. At no time did Ulrich or Swalinkavich take an active part.

FGS was patterned after Continental Coin Corporation, which operated in the Minneapolis area from 1973 to 1975. Several of the defendants, Kaminski, Mount, and Payne, and a government witness, Newham, had all been employed by Continental Coin at one time or another. The principal mode of doing business at FGS involved the sale of gold and silver coins on "margin" or "leverage contracts." This manner of sale required the customer to pay only a portion (the minimum was 10%) of the total purchase price of a specified amount of gold or silver coins and to agree to pay the balance at some future date. The balance was financed by FGS at the rate of 8% per annum, and a 1% commission was charged on the total amount of the sale. Customers were told that if some time in the future they paid off the balance of their contract, they could either take actual delivery of the gold or silver, or receive the value of the metal in cash. The customer could also instruct FGS to liquidate his position in the market at any time and take either the profit or the loss on his transaction. A few customers chose to pay the full purchase price of their gold or silver coins and take immediate delivery, but these transactions were rare.

Buying on margin enabled a customer to control a larger amount of gold or silver than through a cash purchase. Thus, larger profits could be reaped, or larger losses incurred, depending on whether the price of gold or silver rose or fell. The lure of enormous profits was used as a strong selling point by FGS salespersons to encourage prospective customers to use the margin accounts. ⁵

When the price of gold or silver rose significantly, a margin customer would acquire additional equity in his account. But if the price of gold or silver dropped, the customer would have to meet a "margin call," that is, he would have to put in additional money to make up for losses and keep the account margined at the minimum 10% level, as required by FGS. When the price of gold or silver was on the rise, FGS salesmen would encourage customers to reinvest their surplus equity. FGS tried to keep their customer accounts margined to the fullest extent in order to be in a position to make margin calls in the event of a sudden drop in prices.

For much of the first year (1977) business at FGS was not good. At this time Kaminski was acting as sales manager, and Mount was acting as President. In an effort to boost sales Kaminski contacted Newham in the fall of 1977 about coming to work at FGS after he was released from the hospital where he was undergoing treatment for alcoholism. Kaminski knew Newham from Continental Coin, and he respected his skills as a salesman. The matter was discussed again during November, and then, in December, when Kaminski acquired a company called National Commodities Exchange, Newham agreed to become the new sales manager of FGS.

Upon joining FGS Newham took steps to change the management of the company with the aim of improving the level of sales. In January of 1978, for example, Newham hired defendant Payne, a close friend, to serve as Director of Market Research. He also acquired more sumptuous office space, designed a fancy brochure about FGS, and placed advertisements in the Wall Street Journal. Newham, along with other FGS employees, also attended various seminars around the country in an effort to meet prospective investors.

Newham was known by many as extravagant. At the very least he believed in spending money to make money. Because of this trait, and partly because of a general personality conflict, Newham and Mount did not get along. Often they did not speak to one another, and when they did communicate, they usually did so through intermediaries like Payne and Kaminski. At this time, in 1978, Kaminski was spending most of his time at National Commodities, but he continued to take a part in the running of FGS (the two companies had offices in the same building) and, of course, he still owned a portion of FGS.

Payne, as we noted earlier, was serving as Director of Market Research. While at this post he wrote a daily newsletter containing market information that was available to all FGS sales personnel. He was also responsible for managing FGS's hedge account. A hedge account is a means of transferring the risk of customers' investments by the purchase of futures contracts in the gold and silver markets to cover the leverage contracts. Ideally, when a leverage contract was sold, FGS would then purchase a futures contract for a like amount of gold or silver. In this manner the company could be protected from fluctuations in the metals markets. The facts as presented to the jury, however, indicated that FGS was not fully hedged for most of the time that it conducted business. After FGS was seven months old its obligations to its customers were greater than the level of its coverage. By June of 1978 the deficit was approximately $7,000,000. ⁶ In August of 1978 Mount told Newham that FGS was broke and that he feared going to prison unless they received new money from sales. As the financial condition of FGS worsened, so did the working relationship of Mount and Newham. As a result of this friction Newham suggested to Kaminski that he would like to buy Mount's interest in FGS in order to get him out of the company. In January of 1979 Mount, through Kaminski, agreed to a sale of his interest for a price of $250,000. Newham paid $100,000 down out of FGS's own funds and agreed to make further payments on the balance.

In February of 1979, with Newham ostensibly in sole control of FGS, he hired George Fahr, an experienced salesman who was driving a taxicab at the time. Fahr came to Newham's attention through Kaminski, who encouraged Newham to hire him. The last of the defendants, Jack Brownrigg, was hired as a salesman in April at the suggestion of Fahr. Soon after, Brownrigg was made sales manager, and Fahr was installed as general manager. These remaining defendants served in these positions up until the time of FGS's demise in September of 1979 as a result of investigations by...