U.S. v. Pearlstein

• Decision Date: 21 April 1978
• Docket Number: No. 77-1382,Nos. 77-1381,No. 77-1383,No. 77-1381,77-1381,77-1382,77-1383,s. 77-1381
• Citation: 576 F.2d 531
• Parties: UNITED STATES of America v. Martin W. PEARLSTEIN a/k/a Martin Williams, Frank A. Trombetta a/k/a Frank Anthony, Gerald Segal, Sigmund Traister, Albert Hurwitz, and Benjamin Hannig. Gerald Segal, appellant inSigmund Traister, appellant inBenjamin Hannig, appellant into 77-1383.
• Court: U.S. Court of Appeals — Third Circuit

Page 531

576 F.2d 531

UNITED STATES of America v. Martin W. PEARLSTEIN a/k/a Martin Williams, Frank A.

Trombetta a/k/a Frank Anthony, Gerald Segal,

Sigmund Traister, Albert Hurwitz, and

Benjamin Hannig.

Gerald Segal, appellant in No. 77-1381

Sigmund Traister, appellant in No. 77-1382

Benjamin Hannig, appellant in No. 77-1383

Nos. 77-1381 to 77-1383.

United States Court of Appeals,

Third Circuit.

Argued Oct. 18, 1977.

Decided April 21, 1978.

Joshua Friedman, Taenzer & Friedman, P. C., Cinnaminson, N. J., for appellant Gerald Segal.

Howard Ross Cabot, Cherry Hill, N. J., for appellant Sigmund Traister.

J. Llewellyn Mathews, Apell, Forman & Howard, P. C., Browns Mills, N. J., for appellant Benjamin Hannig.

Jonathan L. Goldstein, U. S. Atty., by Ralph A. Jacobs, Asst. U. S. Atty., Newark, N. J., for appellee.

Before ADAMS and GARTH, Circuit Judges, and LAYTON, Senior District Judge. ^*

OPINION OF THE COURT

LAYTON, Senior District Judge:

Appellants were convicted of mail fraud under 18 U.S.C. § 1341. ¹ The primary issue raised by each defendant in this consolidated appeal is whether there was sufficient evidence adduced at their joint trial to sustain the jury's verdicts against them. Because we conclude that there was not, we reverse.

Appellants Segal, Traister and Hannig were indicted along with three others for conspiracy and mail fraud. Count I of the thirty-four count indictment alleged that the six defendants, and a seventh unindicted confederate, conspired to use the mails for the purpose of executing a scheme to defraud. The allegedly fraudulent scheme involved the sale of distributorships for a direct-mail-marketing pen company organized by defendants Pearlstein and Trombetta, and by the unindicted co-conspirator, Gabriel Rudolph. Defendants Segal, Traister, Hurwitz and Hannig were salesmen employed by the pen company. Eighteen of the substantive mail fraud counts charged the defendant-salesmen, together with Pearlstein and Trombetta, with specified uses of the mails in furtherance of the fraudulent scheme. Only one salesman was charged per count, although each salesman was charged in several counts. The remaining fifteen substantive counts charged only Pearlstein and Trombetta. Each of the thirty-three substantive mail fraud counts was based upon a particular mailing to one of thirty-five allegedly-defrauded victims of the scheme.

Trombetta died prior to trial. Both Pearlstein and Hurwitz pleaded guilty to a reduced number of counts. A motion for separate trials was denied and the joint trial of the remaining defendants, Segal, Traister and Hannig, commenced on January 3, 1977, before the United States District Court for the District of New Jersey. Upon defense motions at the close of the Government's case, the trial court dismissed the conspiracy charge but refused to enter judgments of acquittal on the substantive mail fraud counts, and also denied a renewed severance motion. The case finally went to the jury on January 28 and three days later the verdicts were returned. Segal was convicted on two of the three remaining counts in which was charged; Traister on two of four; Hannig on two of three. The trial court denied defendants' renewed motions for judgments of acquittal and also refused to order new trials. Each appellant has been fined and sentenced to a term of imprisonment.

Although they challenge their convictions on numerous grounds, we find it necessary to treat only the primary issue raised by the appellants: whether the evidence presented at their trial was sufficient to support their convictions under 18 U.S.C. § 1341.

I

The scope of the federal mail fraud statute is quite broad. It generally proscribes any "scheme or artifice to defraud" which in some way involves the use of the postal system. ² The essential elements of an offense under § 1341 are 1) the existence of a scheme to defraud; 2) the use of the mails in furtherance of the fraudulent scheme; and 3) culpable participation by the defendant. E. g., United States v. Tiche, 424 F.Supp. 996, 1001 (W.D.Pa.), aff'd mem., 564 F.2d 90 (3d Cir. 1977).

We carefully have reviewed the evidence in this case to determine whether each of those elements was established adequately with respect to each defendant. In so doing, we have been mindful that as an appellate tribunal we must view the evidence in the light most favorable to the Government, United States v. Crockett, 534 F.2d 589, 598 (5th Cir. 1976); United States v. Adamo, 534 F.2d 31, 36 (3d Cir. 1976), and must indulge all reasonable inferences in favor of sustaining the jury's verdicts. United States v. Caine, 441 F.2d 454, 457 (2d Cir.), cert. denied, 404 U.S. 827, 92 S.Ct. 59, 30 L.Ed.2d 55 (1971). Viewing the record from this perspective, we must determine whether there is substantial evidence to support the convictions before us. Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 86 L.Ed. 680 (1942). Accord, United States v. Netterville, 553 F.2d 903, 909 (5th Cir. 1977), cert. denied, --- U.S. ----, 98 S.Ct. 719, 54 L.Ed.2d 752 (1978). The trial court record in this case is far too lengthy to permit its detailed analysis here but we will discuss briefly the salient features of the alleged fraudulent scheme and each defendant's participation therein.

THE G. MARTIN FRANK, LTD./ELGIN PEN SCHEME

In the fall of 1969, Pearlstein, Trombetta and Rudolph were working as salesmen for Nelson James, Ltd., a California company involved in the direct mail marketing of pens. Impressed with the apparent success of their employers, the three salesmen decided to start their own pen company. As a result, G. Martin Frank, Ltd., was incorporated in New Jersey in February, 1970.

G. Martin Frank (GMF) was created as a virtual carbon copy of Nelson James. Writing instruments were sold to businesses through local distributorships, or franchises, under the label "Elgin Pen." The three GMF principals recruited and trained distributorship salesmen, and provided them with leads developed through newspaper advertisements. Using a sales kit prepared by the principals, the salesmen contacted prospects around the country, gave a standard sales pitch also developed by the principals, and signed persons to affiliate distributorship agreements. As part of these agreements, distributors purchased mailing lists from GMF, the size of which determined the commissions earned by the salesmen. GMF purchased the mailing lists from two national marketing research firms for about one-tenth the price it charged the distributors. In addition to the mailing lists, distributors received Elgin Pen promotional material, sample pens and order forms. They earned commissions on pen orders placed with GMF through mass mailing solicitations which they prepared using the mailing lists and other materials. GMF handled the actual sale and distribution of the pens and contracted with several companies for their manufacture under private labelling arrangements.

G. Martin Frank, Ltd., was notably unsuccessful. Although 141 persons invested almost a quarter of a million dollars in Elgin Pen distributorships, only $20,000 in pen orders were generated through the mass mailings and just $4600 in commissions were paid to distributors. Not one distributor came within $1000 of recouping In determining whether the GMF/Elgin Pen operation was fraudulent in nature, there are no hard and fast rules of law to apply. The "scheme to defraud" element of the offense of mail fraud under § 1341 is not defined according to any technical standards. United States v. Bruce, 488 F.2d 1224, 1229 (5th Cir. 1973), cert. denied, 419 U.S. 825, 95 S.Ct. 41, 42 L.Ed.2d 48 (1974). The scheme need not be fraudulent on its face, id., but must involve some sort of fraudulent misrepresentations or omissions reasonably calculated to deceive persons of ordinary prudence and comprehension. United States v. New South Farm & Home Co., 241 U.S. 64, 71, 36 S.Ct. 505, 60 L.Ed. 890 (1916); United States v. Serlin, 538 F.2d 737, 743-44 (7th Cir. 1976); Fabian v. United States, 358 F.2d 187, 193 (8th Cir.), cert. denied, 385 U.S. 821, 87 S.Ct. 46, 17 L.Ed.2d 58 (1966); United States v. Bruce, supra at 1229; United States v. Schall, 371 F.Supp. 912, 916 (W.D.Pa.1974), aff'd mem., Appeal of Nikolich, 503 F.2d 1400 (3d Cir.), cert. denied, 420 U.S. 993, 95 S.Ct. 1432, 43 L.Ed.2d 676 (1975). Furthermore, the term "scheme to defraud" connotes some form of planning or pattern. Fabian v. United States, supra at 192-93.

his investment. In contrast, the GMF principals were able to draw substantial salaries and maintain healthy expense accounts despite the serious financial difficulties in which the company found itself. In August, 1971, the last Elgin Pen distributorship was sold and a few months later, G. Martin Frank, Ltd., was forced into bankruptcy by its creditors.

Throughout his testimony, Pearlstein maintained that G. Martin Frank, Ltd., was started as a legitimate enterprise and that it was only after the business began to sour financially that the GMF principals employed misrepresentations and deceptive practices in an attempt to salvage it. Although we do not view this question as without doubt, we conclude that there was ample evidence presented here from which the jury properly could have concluded that the GMF/Elgin Pen operation was fraudulently conceived.

Before any distributorship salesmen were hired, and occasionally thereafter, the GMF principals themselves contacted prospective distributors and made sales presentations. When they did so, Pearlstein and Trombetta used assumed names and presented Elgin Pen business cards which identified them as Martin Williams and Frank Anthony, respectively. These pseudonyms were also used by Pearlstein and Trombetta on GMF correspondence and in telephone conversations with Elgin Pen distributors. The use of aliases is circumstantial evidence of conscious deception. United States v. Cohen, 516 F.2d 1358, 1367 (8th...