U.S. v. MacClain, 73-1851

• Decision Date: 23 September 1974
• Docket Number: No. 73-1851,73-1851
• Citation: 501 F.2d 1006
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Eddie L. MacCLAIN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1006

501 F.2d 1006

UNITED STATES of America, Plaintiff-Appellee, v. Eddie L. MacCLAIN, Defendant-Appellant.

No. 73-1851.

United States Court of Appeals, Tenth Circuit.

Argued and Submitted July 9, 1974.

Decided Aug. 16, 1974, Rehearing Denied Sept. 23, 1974.

Donald S. Molen, Denver, Colo., for defendant-appellant.

Richard Slivka, Asst. U.S. Atty. (James L. Treece, U.S. Atty., on the brief), for plaintiff-appellee.

Before HILL, MOORE ^* and DOYLE, United States Circuit Judges.

HILL, Circuit Judge.

Eddie MacClain was indicted by a federal grand jury in Colorado on five counts of securities fraud and mail fraud, in violation of 15 U.S.C. 77q(a) and 77x, and of 18 U.S.C. 2 and 1341. He subsequently was convicted by a jury on all counts.

The following evidence was adduced at trial. In the summer of 1966, MacClain and Kenneth Cook decided to establish a mail order business in Denver, Colorado. Neither one had the necessary financial resources for the venture, and so a third person was persuaded to put up $10,000 for initial operating capital. The business became operational that fall and was incorporated under the name of Cherry Creek International, Ltd. (later changed to House of Knowledge, Inc.). Cook became its president and MacClain its secretary-treasurer. Each was to receive a monthly salary of $1,000.

Corporate efforts were directed toward the publication and sale of an instruction manual for operating a mail order business, the sale of do-it-yourself and self-improvement books in model bookstores, and an attempt to franchise bookstores. The business, however, proved to be less than successful. Fewer than 100 copies of the mail order book were sold, and the do-it-yourself and self-improvement books were just as unpopular. In fact, the corporation realized only $814 from the sale of books. The corporation's model bookstores, all located in Denver, either lasted only a short while or never became fully operational due to lack of funds. Finally, all attempts to franchise its bookstores were fruitless.

The corporation never operated at a profit ¹ and finally ceased doing business in the summer of 1970. Its only assets at that time were various records, a claimed copyright on its mail order book, and $10.70 in the corporate checking account.

The corporation's income was derived primarily from the sale of its stock. Stock sales amounted to over $160,000. Although the book value of the stock never exceeded $2.20 per share, it was sold at prices ranging from ten to fifty dollars per share. The record discloses that MacClain had the primary responsibility for selling stock. ² He was aided in his solicitation efforts by Albert Sobie, an insurance salesman who introduced MacClain to his clients. In return, Sobie received a 20 percent commission on the sales.

Five stockholders testified at trial about their course of dealings with MacClain. His approach was essentially the same toward all of them. Accompanied by Sobie, he would visit a potential investor's home and explain his corporation's operations. Although he was aware that the corporation was in poor financial health and that its product was not selling, he did not tell this to potential investors. Instead, he described the corporation's activities in very positive terms, to say the least. The corporation was doing well, he said, and planned to open (up to 100) new bookstores. Proceeds from the sales of stock were to be used for this purpose. Phoenix, Dallas and Atlanta were mentioned as possible locations. New books were to be purchased at very low prices and sold at a big profit. Although denied by MacClain at trial, stockholders said he informed them that he was an attorney and an accountant (he was not), and that the corporation had met all state and federal securities requirements.

Cook testified, at trial, that the articles of incorporation authorized 25,000 shares of stock and that there was never a shortage of available stock. MacClain, however, told potential investors there was a limitation on the number of shares available and the stock was selling fast. Purchases should be made immediately.

MacClain also described the expected return on the investment in glowing terms. Dividends would be paid quarterly and would begin in several months. One could expect, he told various investors, that the first dividend would almost pay for the price of the stock, that the investment would make a lot of money, and that the first year's dividends would be around $10,000. Approximately fifty-seven persons invested in the corporation. Not one of them received any dividends.

The Securities & Exchange Commission (SEC) commenced an investigation into the corporation's activities in January, 1970. A grand jury subsequently returned a five count indictment against MacClain on May 4, 1973. The indictment alleged, inter alia, that MacClain employed a scheme, device and artifice to fraudulently obtain money and property by means of untrue statements of material fact and omissions of material fact; that the corporation was merely a facade to create the appearance of a legitimate business concern; that funds obtained from investors were converted and used to pay finders' fees and salaries, that MacClain, as part of a scheme to defraud, distributed material through the mails containing misleading statements about the corporation; and that MacClain had knowingly made false and misleading statements to prospective investors.

MacClain was tried before a jury in the United States District Court for the District of Colorado and was convicted on all five counts.

On appeal, MacClain first argues the trial court erred in denying his pre-trial motion to dismiss because pre-indictment delay violated his rights to due process and a speedy trial under the Fifth and Sixth Amendments to the United States Constitution.

The government's investigation was commenced on january 19, 1970, and MacClain was indicted 39 months later on May 4, 1973. He argues that because of this delay correspondence, records and files have been lost or misplaced, and that witnesses' memories have dimmed. He also indicates that further investigation into the matter may show the delay was purposefully designed to gain a tactical advantage.

The argument is without merit. A defendant's rights under the Fifth Amendment's due process clause are not violated in the absence of a showing that actual prejudice has resulted from the pre-indictment delay and that the delay was purposefully designed to gain some tactical advantage or to harass the defendant. United States v. Beitscher, 467 F.2d 269 (10th Cir. 1972). MacClain's allegations in this regard are unsupported. The record does not disclose the loss to him of any exculpatory evidence or that the government delayed to secure a tactical advantage. All MacClain can point to is the length of time, which is not unreasonable in view of the fact that a complex mail fraud/securities fraud case such as this calls for extensive and careful preparation and organization. See, e.g., United States v. MacKay, 491 F.2d 616 (10th Cir. 1973).

Nor is the Sixth Amendment's speedy trial guarantee available to MacClain. It is applicable only after a defendant has been accused, United States v. Marion, 404 U.S. 307, 92 S.Ct. 455, 30 L.Ed.2d 468 (1971), which in the instant case did not occur until MacClain was indicted. We are convinced that he had a fair trial and was deprived of no Fifth or Sixth Amendment rights.

MacClain next contends the evidence does not support a conviction under 15 U.S.C. 77q(a) ³ and 18 U.S.C. 1341 ⁴ because the government failed to prove that any statements or representations he made were false or misleading. In deciding this issue we must view the evidence presented in the light most favorable to the government. United States v. Twilligear, 460 F.2d 79 (10th Cir. 1970).

The record indicates that some of the statements MacClain made to prospective investors were knowingly false. Stockholders testified he said he was an accountant and a lawyer, when he was neither. And although the corporation was not registered with the SEC, he said it had met all federal and state securities laws. He also stated that the corporation was doing well when in fact he knew that it had never operated profitably. Furthermore, he stated that proceeds from the sale of stock were to be used to open up new bookstores. The record discloses, however, that almost 60 percent of these funds were used to pay salaries, commissions and expenses. MacClain said he had borrowed money to invest in the corporation, when he had not. Finally, he told prospective investors there was a limitation on the amount of stock available and that only a 'few shares' or a 'little dab' was left. Yet Cook testified that 25,000 shares were authorized and there never was a shortage of stock.

It also appears that MacClain neglected to inform potential investors of the corporation's true financial status. They were not told that the corporation was operating at a loss, that it did not have funds to stock its bookstores, that the books were not selling, or that a franchise had never been successfully sold. The statements he did make, however, were obviously misleading when considered in the light of the corporation's true status. MacClain said the stock was selling fast and needed to be purchased immediately. He also said that 100 new bookstores were to be opened and that stock dividends were to be paid quarterly. He told one potential investor that the first dividend would almost pay for the price of the stock, and that the first year's return should be enough to pay for a vacation. Yet another potential investor was told that the first year's dividends would be approximately $10,000. In October, 1968, he told one investor that stock dividends would begin in April, 1969, and yet in June, 1969, he told another investor that dividends would not begin for at least one year.

The record thus...