U.S. v. Preston, s. 79-1553

• Decision Date: 17 November 1980
• Docket Number: 79-1554 and 79-1555,Nos. 79-1553,s. 79-1553
• Citation: 634 F.2d 1285
• Parties: 7 Fed. R. Evid. Serv. 741 UNITED STATES of America, Plaintiff-Appellee, v. Robert Lee PRESTON, Stanley Burr Meaker, Robert Mathias Bromley, Defendants- Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1285

634 F.2d 1285

7 Fed. R. Evid. Serv. 741

UNITED STATES of America, Plaintiff-Appellee, v. Robert Lee PRESTON, Stanley Burr Meaker, Robert Mathias Bromley, Defendants- Appellants.

Nos. 79-1553, 79-1554 and 79-1555.

United States Court of Appeals Tenth Circuit.

Argued Sept. 16, 1980.

Decided Nov. 17, 1980.

Ronald C. Barker, Salt Lake City, Utah, for defendant-appellant, preston.

Tom Jones, Salt Lake City, Utah, on brief for defendant-appellant, Meaker.

Richard F. Bojanowski, Salt Lake City, Utah, for defendant-appellant, Bromley.

Francis M. Wikstrom, Salt Lake City, Utah, (Ronald L. Rencher, U. S. Atty. and James R. Holbrook, Asst. U. S. Atty., Salt Lake City, Utah, on brief), for plaintiff-appellee.

Before BARRETT and DOYLE, Circuit Judges, and TEMPLAR, ^* Senior District Court Judge, District of Kansas.

WILLIAM E. DOYLE, Circuit Judge.

Introduction

In this mail fraud prosecution the above defendants seek reversal of their convictions on each of the several counts contained in the indictment.

The allegations are that Robert Lee Preston was president of Constitution Mint, Inc., the corporation which was engaged in the business of selling silver and other precious metals to the public. Stanley Burr Meaker was Vice President and a Member of the Board of Directors; Robert Mathias Bromley was Director of Marketing.

Also alleged is that the defendants devised and intended to devise a scheme and artifice to defraud and to obtain money by means of false and fraudulent pretenses, representations and promises; and that the defendants did knowingly cause to be delivered by mail certain matters for the purpose of executing and attempting to execute the scheme to defraud. ¹

The scheme, according to the allegations in the indictment, was to make false representations to customers and prospective customers, such as that Constitution Mint had a one million dollar performance bond which would insure all of its customers against financial loss; that the corporation had an inventory of silver sufficient to cover all orders purchased by customers; that the corporation, Constitution Mint, was financially solid, stable and reliable; that the corporation had obtained one of the richest mining districts on record containing several billion ounces of silver and gold. The scheme also included fraudulent failure to disclose to prospective customers:

1. That Constitution Mint, Inc. was only negotiating for the purchase of the one million dollar ($1,000,000) bond.

2. That the corporation did not have a silver inventory sufficient to cover customer purchases; that the corporation was in severe financial difficulty beginning in approximately January of 1974.

Counts Two through Fourteen describe specific transactions with named individuals describing individual sales in very substantial amounts of money and use of the mails for the execution of the several sales.

The pertinent elements, here, of a mail fraud violation are the devising, or intent to devise a scheme to defraud, or for obtaining money or property by means of false or fraudulent pretenses, and secondly, the placing in the mails of any mail matter for the purpose of executing such scheme or artifice.

Failure to Deliver the Silver Following Sales

The individual defendants conducted business through Constitution Mint, Inc., a corporation. The business activities started in June 1973. Preston and Meaker were the principal corporate officers. Preston was president and chairman of the board; Meaker was initially responsible for marketing, and later became vice president responsible for developing the Mint's mining interests. Bromley took over the responsibility for marketing after joining the corporation in January 1974.

For a time after the commencement of the business until October 1973 there existed a system of inventory control which avoided the financial problems which developed after October. After that the corporation was selling silver and other products which it did not have in its inventory and did not have sufficient cash to obtain. The period of delay in delivery increased as replacements were not full and complete in terms of maintaining an inventory which allowed prompt delivery after the sale. First there was a seven or eight week delay in delivery of orders to retail customers and a shortage of about 80,000 ounces of silver which became apparent in December 1973 and early January 1974. When they discovered the shortage of silver, so the defendants say, the price had risen from about $2.00 an ounce to about $3.00 an ounce. Meanwhile the financial statement had been prepared for December which showed a profit based upon the continued selling of orders. Actually there was a deficit.

A substantial portion of the profits appearing in the December statement was distributed to the shareholders in the form of draws. In addition to the dividends, Preston and Meaker received salaries and refunds of cash contributions which they made in the corporation. There is testimony that Meaker and Preston were advised of the financial problems in December. About this time Preston left the corporation and started travelling around the country giving lectures on investment opportunities in silver. He was kept advised, however, during the next four months as to the company's activities.

In January 1974 a new financial statement was made which showed a deficit. The previous "first in first out" inventory control system was resumed, but a further loss was suffered as a result of dealing in the commodity futures market. An outside audit reported to the company in April 1974 showed that as of January 1974 there existed unfilled orders amounting to $2,750,000. At the same time the company had an inventory of $2,000,000 worth of silver. They continued to operate in the same manner, that is, they filled the orders that had existed in January 1974 but did so by using money from new orders, which new orders could not be filled. So their way of doing business was, so to speak, one of robbing Peter to pay Paul.

The production consultant, so-called, and the auditors advised the officers to convert the profits which had been drawn by them on the books to loans owed by them to the company. Preston was the only one who paid back any of the amount drawn and his effort was limited to $5,000. The other stockholders did not pay back any money, and eventually the $160,000 in loans was written off. Some progress was realized in February 1974 in bringing the deliveries up to date. Preston returned to the company in April 1974 from his lecture tour. Production had again fallen behind deliveries. In April Preston communicated with the board members, instructing them to keep the financial problems confidential. He also met with the production department to discuss the priorities of selling orders. This was called a hot list.

In April 1974 a lawyer advised the Board of Directors to make full disclosure of the financial problems to the customers, to stop selling silver without having it in inventory and to pay back the cash drawn off by the shareholders as refunds of cash contributions. The Board members were told that criminal sanctions could result from their activities. Based on this advice Preston paid $12,000 on Meaker's behalf, but no other money was returned.

The company continued to operate during the summer of 1974, during which period it sought to make up the deficit. However in August they were served with a cease and desist order of the Utah Attorney General. As of July 31, 1974 there was a deficit of $2,300,000.

Obtaining Mining Properties

One aspect of this operation was to seek mining properties, and a contract was actually signed to purchase several claims in mining areas of Utah and a lease was executed involving claims in the same area. Both the contract and the lease were later forfeited. A part of the sales process involved representations that the Mint had obtained one of the richest mining districts on record containing several billion ounces of silver and gold. In truth the closest the company came to doing any mining was to consider processing tailings around the abandoned mining properties.

The So-Called Performance Bond

One of the representations which was made pertained to a $1,000,000 performance bond for the protection of customers. At most the company negotiated for such a bond but never actually had one. Financial statements showing a sound financial position were required, and the agent for Lloyds of London was never able to get the statements from the company. No formal application for such a bond was ever made and no such performance bond was ever in effect. The Contentions of the Defendants

Preston's contentions on appeal are:

1. That the verdict and judgment was not supported by the evidence.

2. That the court erred in refusing to charge the jury in writing and in failing to give tendered instructions.

3. That the court erred in admitting evidence that showed other crimes.

4. That the court erred in allowing the prosecuting attorney to speak in an inflammatory manner in closing argument.

Defendant Meaker contends:

1. That the evidence was insufficient.

2. That the court erred in denying the defendant's motions for mistrial.

3. That the court erred in its instructions to the jury.

The defendant Bromley's contentions are substantially similar to those of Preston and Meaker although he claimed that numerous exhibits were received but only a few of these had any relevancy as far as he was concerned and that he should have been granted a severance.

I. The Question of Sufficiency or Insufficiency of the Evidence

The arguments under this heading involve claims that the defendants were unaware of the fact that the customers were being given false information. These defendants maintained that they acted in good faith at all times; they believed that the information that was being given out was true.

Preston is shown to have kept abreast of...