U.S. v. Kelly

Decision Date20 March 1978
Docket NumberNo. 76-2236,76-2236
Citation569 F.2d 928
PartiesUNITED STATES of America, Plaintiff-Appellee, v. Harry Neil KELLY, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Charles E. Moore, Jr., W. Larue Boyce, Jr., Atlanta, Ga., for defendant-appellant.

Jack V. Eskenazi, U. S. Atty., James Lloyd Whitten, Asst. U. S. Atty., Miami, Fla., Mark S. Davidson, Dept. of Justice, Atty., Washington, D. C., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before BROWN, Chief Judge, GEWIN and TJOFLAT, Circuit Judges.

GEWIN, Circuit Judge:

Appellant Harry Neil Kelly was tried by a jury and convicted on all counts of a three-count indictment charging violations of 18 U.S.C. §§ 2314, 2, & 371, in that he caused and conspired to cause a person to travel in interstate commerce in execution of a scheme to defraud. 1 On appeal Kelly challenges: (1) the sufficiency of the evidence to support his conviction, (2) the court's failure to charge the jury on accomplice testimony, (3) its refusal to give requested instructions, (4) denial of his motion for continuance, (5) denial of his motion for severance, (6) admission of testimony allegedly barred by the attorney-client privilege, (7) failure to grant a mistrial, and (8) failure of the government to comply with the court's discovery order. Finding his assignments of error without merit, we affirm.

FACTS

In 1969 appellant Kelly chartered an offshore mutual fund, the Allied Fund for Capital Appreciation (AFCA) in Panama. Kelly was the president of the fund which was managed from Munich, Germany. AFCA shares were distributed by a Munich concern called Select Distributors (Select). Kelly worked as an agent for Select, which was managed by a Miss Smith and two AFCA directors, a Mr. Bennett and a Mr. Gravesteyn. 2 Kelly received funds from Select and placed them in Midwest National Bank (Midwest), an institution he had chartered in Panama through an attorney. In Kelly's own words, Midwest was "a proof." (R. 316). The bank's headquarters consisted of an 18 by 24 foot room furnished with some tables and chairs, filing cabinets, a typewriter and Telex machine, and a small refrigerator. Midwest's primary function was to serve as a depository of funds from AFCA's largest shareholder, the KARA trust. The trust, which according to testimony was named for Kelly's daughter Kara and controlled by Kelly as her guardian, received AFCA shares and in turn transferred funds, at least on the books, to Midwest.

AFCA itself operated by receiving money from investors throughout the world and issuing shares in the fund in return. Investments in the fund were solicited on the basis of prospectuses and financial statements representing that AFCA had millions of dollars worth of blue chip securities. 3 AFCA's assets were allegedly held by Midwest and Drabun, Inc., a New Orleans brokerage firm, according to confirmations furnished AFCA's auditor Eric Gaeckler by Midwest and Drabun. 4 Drabun's owner, Peter Schreiber, however, testified that he had never held any assets for AFCA, and that when he received a letter from Select asking him to verify these assets he called Kelly on the matter. Kelly replied that there was "paperwork" at the office of the fund showing that Drabun held the assets, but not to worry about it, that "(t)hey will never surface," that "Mr. Gravesteyn had control of it." (R. 119).

In the late spring of 1970, Gaeckler, in endeavoring to prepare a financial statement for the fund, discovered that all of its assets had been transferred to Midwest. 5 The following spring Gaeckler travelled to Panama to audit the assets allegedly held by Midwest and found nothing but a sparsely furnished room. Upon this discovery he notified Select to stop all transactions and redemptions involving AFCA. Gaeckler subsequently met Kelly in Mexico City and confronted him with what he had learned in Panama. Kelly informed him that AFCA's assets were located in a Mexico City bank. Gaeckler visited the bank and requested a written confirmation of the assets. He never received a confirmation and eventually discovered that only a few thousand dollars remained to the credit of the fund.

This case arose out of a transaction between Kelly and William R. Ponsoldt in April of 1970, in which 200,000 shares of AFCA were exchanged for all the shares in Ponsoldt's Schweiz-Deutsch Land Company (SDL). 6 SDL purportedly held 160 acres of property in New Jersey and a substantial amount of securities. Apparently AFCA never received the property but received shares in a company of questionable worth called Computronics. The AFCA shares were restricted from redemption for one year.

On June 28, 1970 Ponsoldt met with Harry Bloomfield, president and owner of a controlling interest in Bloomfield Building Industries (BBI), a corporation listed on the American Stock Exchange, at the Brilund Yacht Club in the Bahamas to discuss a trade of AFCA shares for Bloomfield's controlling interest in BBI. Bloomfield travelled to this meeting by plane, flying from his home in Memphis, Tennessee, to Miami, Florida, where he spent the night. The next day he met Ponsoldt in Nassau and together they flew to the yacht club.

Under the terms of the trade, which had been worked out in advance of this meeting, Bloomfield was to receive approximately $2,400,000 in AFCA stock plus cash or another asset agreeable to him in return for Bloomfield's shares in BBI. Bloomfield, however, was concerned about the restriction on the redemption of the AFCA shares. Ponsoldt assured Bloomfield that the restriction only applied to Ponsoldt, not to third party purchasers of the stock, and stated that Bloomfield could redeem the AFCA shares in seven days at the market price. Satisfied with Ponsoldt's answer, Bloomfield concluded the contract.

Bloomfield subsequently attempted to redeem the AFCA stock but was unsuccessful. 7 On November 4, 1970, he travelled from Memphis to Miami for a meeting with Ponsoldt to resolve the problem of the redemption of the AFCA shares. Present at this meeting was Kelly, whom Ponsoldt introduced as the head of the AFCA fund. When Bloomfield demanded that either the AFCA shares be redeemed or the deal be rescinded, Kelly remarked that generally when one tried to cash in stock prior to the redemption date one could only get fifty cents on the dollar. Bloomfield replied that he might accept that arrangement. Kelly and Ponsoldt then left the room to discuss the proposal. When they returned, Bloomfield was told that they would have to contact the "people" in Germany and was assured that they would get in touch with him later. No reply was ever forthcoming from Germany. In May of 1971 Ponsoldt and Bloomfield rescinded their agreement and made a settlement agreement.

I. Sufficiency of the Evidence

The jury has weighed the evidence and determined the credibility of the witnesses presented by both sides in this case. Taking, as required, the view most favorable to the government, we must sustain the jury's verdict if substantial evidence exists to support it. Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1942).

Appellant challenges the sufficiency of the evidence under Counts I, II and III of the indictment. Both Counts I and II charge violations of 18 U.S.C. §§ 2314 and 2. 8 Section 2314 defines the substantive offense and section 2 defines the offense of aiding and abetting. Count III alleges that appellant conspired to violate section 2314. Since the sentences of three years imposed by the district court on each count are to run concurrently, if we find there is sufficient evidence to support appellant's conviction under any one count, we need not consider the remaining counts. Hirabayashi v. United States, 320 U.S. 81, 63 S.Ct. 1375, 87 L.Ed. 1774 (1942); United States v. Dumenigo, 444 F.2d 253 (5th Cir. 1971) (per curiam).

Appellant charges that the government has failed to demonstrate a violation of section 2314. The pertinent provision of 18 U.S.C. § 2314 states:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transports or causes to be transported, or induces any person to travel in, or to be transported in interstate commerce in the execution or concealment of a scheme or artifice to defraud that person of money or property having a value of $5,000 or more; . . .

Shall be fined not more than $10,000 or imprisoned not more than ten years, or both.

The statute thus requires the devising of a scheme to defraud any person of money by false representations and causing or inducing that person to travel in interstate commerce in furtherance of that scheme. Appellant contends that the evidence adduced by the government fails to satisfy these elements of the offense in that it does not show that appellant devised a scheme to defraud Bloomfield and caused Bloomfield to travel in interstate commerce in execution of such a scheme. Initially we turn to an examination of the first element of the offense the existence of a scheme to defraud.

Appellant primarily contends that there was no evidence that AFCA was not a viable mutual fund and that the shares of AFCA transferred to Ponsoldt were worthless. We believe that there was sufficient evidence for the jury to conclude that AFCA was a fraudulently created mutual fund and that its shares were worthless or nearly so. It was shown at trial that the "bank" which supposedly held the bulk of AFCA's assets was a mere shell corporation consisting of a single room, devoid of either personnel or funds. There was testimony that the securities comprising AFCA's portfolio were compiled by appellant and two others by selecting stock of corporations at random from the financial section of a newspaper. AFCA's prospectus failed to mention Kelly's connection with the fund,...

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