U.S. v. Rubin

• Decision Date: 06 September 1979
• Docket Number: No. 352,D,352
• Citation: 609 F.2d 51
• Parties: 5 Fed. R. Evid. Serv. 202 UNITED STATES of America, Appellee, v. William RUBIN, Defendant-Appellant. ocket 78-1221.
• Court: U.S. Court of Appeals — Second Circuit

Page 51

609 F.2d 51

5 Fed. R. Evid. Serv. 202

UNITED STATES of America, Appellee, v. William RUBIN, Defendant-Appellant.

No. 352, Docket 78-1221.

United States Court of Appeals, Second Circuit.

Argued Nov. 8, 1978.

Decided Sept. 6, 1979.

Louis Bender, New York City (Sandor Frankel, Bender & Frankel, New York City, of counsel), for defendant-appellant.

Rhea Kemble Neugarten, Asst. U. S. Atty., S. D. N. Y., New York City (Robert B. Fiske, Jr., U. S. Atty., Robert J. Jossen, Asst. U. S. Atty., S. D. N. Y., New York City, of counsel), for the U. S.

Before FRIENDLY, MANSFIELD and MESKILL, Circuit Judges.

MANSFIELD, Circuit Judge:

William Rubin appeals from a judgment of the District Court for the Southern District of New York, entered on June 30, 1978, by Judge Constance Baker Motley, Judge, after a fifteen-day jury trial, convicting him of conspiracy to violate a federal statute prohibiting the making of false statements in connection with a loan application, a loan renewal, deferral of action on a loan, or substitution of security for a loan, as well as federal statutes relating to mail fraud, wire fraud and securities fraud. ¹

Rubin and four others were named in a three-count indictment handed down on January 27, 1978. Count One charged all five with conspiracy as indicated above. Count Two charged Rubin and three of the others with a substantive violation of 18 U.S.C. § 1014, the false statement statute, and 18 U.S.C. § 2. Count Three charged Rubin and three of the others with a substantive violation of 15 U.S.C. § 77q(a), the securities fraud statute, and 18 U.S.C. § 2. ²

Prior to trial the Government moved for a severance of Rubin's trial from the trials of the other defendants; the trial judge granted the motion and Rubin was tried first. ³ The jury found Rubin guilty on Count One but acquitted him on Count Three; the Government then moved to have Count Two dismissed, which was granted. Rubin was sentenced to three years in prison, but is free on bail pending disposition of this appeal. Although Rubin does not argue that there was insufficient evidence to support his conspiracy conviction The present case arises out of the activities in late 1972 and 1973 of Rubin, Leonard James, C. W. Deaton and Otto Sebold in fraudulently obtaining financing from the Bankers Trust Company and others for a failing company, Tri-State Energy, Inc. (Tri-State). The methods employed to obtain the funds included use of material misrepresentations, false documentation, worthless collateral, and bribery. Prior to becoming associated with Tri-State and with James and Deaton, who were its principal officers, Rubin, a certified public accountant and law school graduate, was a principal in North American Planning Corporation (NAPC), a brokerage firm. In June, 1972, Rubin borrowed 10,000 shares of All States Life Insurance Company of Alabama from Tri-State on Deaton's representation that the shares were freely tradeable, only to find that they were restricted and unacceptable as collateral, which led to NAPC's demise. Left without a job, Rubin, though put on notice of the fraudulent business methods used by James and Deaton, became associated with them in Tri-State ⁴ in the fall of 1972, and soon embarked upon the fraudulent scheme which led to the indictment in the present case.

he does raise a variety of other legal claims in support of a dismissal of the indictment or a new trial. Finding no merit in these contentions, we affirm.

Tri-State had recently acquired a small coal mine in Kentucky, which operated very briefly in the latter part of 1972. ⁵ The mining properties were used by James and Deaton as a means of obtaining loans from Bankers Trust by falsely representing that they were a viable coal operation. In addition, Tri-State acquired control of other virtually worthless publicly-owned companies, such as American Leisure Corporation, with a view to giving the appearance, on paper at least, of a thriving enterprise. Rubin's function, aside from obtaining some initial small loans from friends for the venture and negotiating some of the acquisitions, was to dress up Tri-State's financial statement in order to give it the false appearance of a company with a substantial net worth that would generate attractive profits in the future.

In October, 1972, Rubin and Deaton (possibly accompanied by James), approached Leonard Ludwig, a branch manager of Bankers Trust Company, with whom Rubin had had dealings before joining Tri-State, to seek a loan for Tri-State. Ludwig refused a loan on the ground that the bank first needed evidence that Tri-State was a viable coal operation. Deaton, James and Rubin responded by preparing various materially false documents, including a financial statement regarding Tri-State's operations and conditions.

A second meeting with Ludwig on October 19, 1972, resulted in his agreeing to make a loan of $50,000 and to discuss additional loans after he had seen more Tri-State financials. Ludwig then obtained approval of the loan from John Keating, another official of the bank, as required by the bank's rules.

At either their first or second visit with Ludwig, Rubin and Deaton told Ludwig that if he took care of Tri-State it in turn would take care of him. After the second visit Rubin, Deaton, and James agreed that a payment of $1500 should be made immediately to Ludwig, to be followed by more at a later time. To accomplish this, Deaton gave Rubin a $1500 Tri-State check payable to cash which Rubin cashed at his country club. Rubin then gave the $1500 in cash to Ludwig, adding that more money would follow. True to his word, Rubin later gave Ludwig an additional $2500 in cash at a meeting in a bar. At Ludwig's suggestion, Rubin also made two payments of $500 cash each to Keating, one by placing the money in Keating's pocket in the men's room at his In addition to the loan of $50,000 which was obtained on October 19, 1972, Rubin and Deaton were able during the following six weeks to borrow $425,000 from Bankers Trust. On November 22, Tri-State renewed the original $50,000 loan for three months and borrowed another $50,000. Eight days later, Tri-State borrowed another $100,000 for three months. After another six days, Tri-State borrowed still another $275,000, also for three months.

Bankers Trust branch and the other in an envelope at the bank.

In addition to their use of bribery of the bank's officers, Rubin, James and Deaton also used materially false financial documentation and bogus collateral to secure approval of the loans and later to prevent the bank from taking action that would precipitate Tri-State's collapse. In response to Ludwig's earlier request, a financial statement was submitted to the bank, which was materially false in several respects. For example, it listed as Tri-State's principal asset a $7.5 million receivable from a company by the name of Charter Financial, supposedly resulting from a coal purchase by that company. There was no such account receivable. ⁶ The statement also showed that Tri-State had over $250,000 in cash. Of this cash amount, $200,000 was in fact attributable to two undeposited, uncashed checks drawn by one Raymond Starns on his personal checking account and in the possession of Tri-State. The financial statement also reflected $180,000 worth of coal inventories. In fact, Tri-State had far less.

The October 20th statement had initially been prepared by an outside accountant named Max Englander. Englander's original draft balance sheet showed the Charter Financial contract as an asset but failed to show any liability. Rubin corrected this by offsetting the "asset" with a liability for income taxes of $3.75 million. Englander's draft also had itemized the company's available cash, dividing it into $200,000 cash on hand and a little over $50,000 in various banks; the draft identified the $200,000 as consisting of the two checks written by Raymond Starns. Rubin "corrected" these entries by consolidating them and eliminating reference to the Starns checks. Rubin made no change relating to the coal inventory, but there was evidence from which the jury could infer that he knew at the time that the Kentucky mine was only minimally operational and that the coal inventory figure was overstated. Englander testified that, after Rubin had made his corrections, Deaton instructed him to make additional changes so as to increase the company's net worth above what it would have been using Rubin's computations. It is the Government's position that, although the copy of the statement that Rubin worked on was not the one ultimately turned over to the bank, Rubin's work on the statement made the Charter Financial asset appear more regular than it really was and eliminated the possibility of the bank's becoming suspicious about the company's available cash. ⁷ From the beginning of its relationship with Tri-State, Bankers Trust had made it clear that any loans must be collateralized. As collateral Tri-State turned over to the bank a certificate for 400,000 shares of American Leisure stock, which was in Tri-State's name, unregistered, and bore a restrictive legend. Keating recognized that unregistered stock was of doubtful value as collateral in the event of default and told Tri-State that he would accept the stock but preferred marketable collateral. He was then assured by Rubin and Deaton that Tri-State would present such collateral and was promised that the restriction on the American Leisure stock would be removed.

Between October of 1972 and January of 1973 Tri-State pledged the stock of several other companies as collateral, including stock in All States. ⁸ The stock was represented to Keating to be marketable, owned by Tri-State and to have been obtained through the sale of coal rights to the Kentucky mine. In fact, as Rubin knew, most of the collateral was not owned by Tri-State but had been "rented" by it for a fee. Moreover, the shares were virtually worthless,...