U.S. v. Smith
| Decision Date | 14 November 1977 |
| Docket Number | Nos. 77-5038,s. 77-5038 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Carlton L. "Corky" SMITH, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. James Wayne BATES, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Gary D. HILL, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Gregory Charles HILL, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. C. Allen CHRISTOPHER et al., Defendants-Appellants. UNITED STATES of America, Plaintiff-Appellee, v. Jim KEY, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Herb JOHNSON, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. William WOODALL, Jr., Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. John ULREY, a/k/a John Taliferro, Defendant-Appellant. to 77-5046. |
| Court | U.S. Court of Appeals — Sixth Circuit |
D. Shannon Smith, Gilday, Jung & Gilday, Cincinnati, Ohio (court appointed), for defendant-appellant in No. 77-5038.
Charles H. Anderson, U. S. Atty., Lawrence Ray Whitley, Nashville, Tenn., for United States.
Charles R. Ray, Barrett, Brandt & Barrett, Nashville, Tenn. (court appointed), for defendant-appellant in No. 77-5039 C. Douglas Thoresen, Nashville, Tenn. (court appointed), for defendant-appellant in No. 77-5040.
Clark H. Tidwell, Nashville, Tenn. (court appointed), for defendant-appellant in No. 77-5041.
G. Whitney Kemper, Kemper & Vance, Nashville, Tenn. (court appointed), for defendant-appellant in No. 77-5042.
Larry R. Williams, Dale, Thompson & Miles, Nashville, Tenn. (court appointed), for defendant-appellant in No. 77-5043.
William N. Fielden, Eichhorn, Fielden, Wetherbee & Coates, San Diego, Cal. (court appointed), for defendant-appellant in No. 77-5044.
Herb Johnson, pro se.
Henry A. Martin, Haile & Martin, Nashville, Tenn. (court appointed), for defendant-appellant in No. 77-5045.
Cleve O. Weathers, Nashville, Tenn. (court appointed), for defendant-appellant in No. 77-5046.
Before EDWARDS, CELEBREZZE and PECK, Circuit Judges.
These appeals are the aftermath of an ambitious federal prosecution which put an unscrupulous commercial enterprise out of the business of bilking hundreds of would-be entrepreneurs across the country of millions of dollars. Five jointly controlled corporations, operating out of Nashville, Tennessee, and thirty of their officers and marketing employees were named in a fifty-two count indictment charging substantive violations of the federal mail and wire fraud statutes, 18 U.S.C. §§ 1341, 1343, and conspiracy to commit these crimes, 18 U.S.C. § 2. After disposition of the cases against the majority of the defendants by guilty pleas and otherwise, one of the corporations and eleven individuals, including the Appellants, went to trial solely on the conspiracy count. The trial court denied preliminary defense motions for severance as well as motions for acquittal at the conclusion of the evidence. The jury returned guilty verdicts as to all defendants, and nine of the convicted individuals perfected these appeals.
The Government elicited testimony from 153 witnesses and introduced more than 170 physical exhibits during the month-long trial. Only one of the Appellants, Herb Johnson, took the stand on his own behalf. The evidence revealed that two of the principal conspirators, both of whom pled guilty prior to trial, conceived and launched an elaborate scheme to market sham wholesale "distributorships" for chemical products. To convince others of the "soundness" of these chimerical investment opportunities, they set about to exploit high pressure sales techniques bolstered by false and misleading representations.
These initial conspirators incorporated L.O.C. Industries which commenced, in January 1975, to sell allegedly exclusive, regional "distributorships" for "Seal-Tite", a tire puncture-proofing sealant of questionable effectiveness. In time, L.O.C. also began to market "distributorships" for "Less-Mow," a grass growth-retardant chemical with equally suspect functional properties. L.O.C. remained in business until December 18, 1975, when its operations were abruptly terminated by an FBI raid during which search and arrest warrants were executed and a substantial quantity of incriminating evidence seized.
Four subsidiary corporations were formed during L.O.C.'s brief existence. Two served as "front" organizations for the marketing of wholesale "distributorships" for other marginally effective products (including another tire puncture sealant and a bogus motor oil enhancing additive). The other two provided marketing support services intended to lend an air of credibility to the entire venture.
Intercontinental Telephone Promotions, Inc., employed a force of telephone solicitors who made all the initial contacts with prospective "distributors" and set up field appointments for all L.O.C. salesmen, including those ostensibly representing the two marketing subsidiaries. Its solicitors used a standard telephone presentation or "pitch" which remained virtually the same, regardless of which product "distributorship" was being sold. This text misrepresented the way that the prospects had been selected to be contacted, the amount of money to be spent by L.O.C. to promote the product in the prospect's region, the place of business of several of the corporations 1 as well as other material facts. Appellant Carlton L. "Corky" Smith initially joined this operation as a telephone solicitor and was ultimately promoted to telephone supervisor.
National Motor Transport Association was a "paper" corporation which represented itself to be an established product certifying organization. It claimed to have performed quality assurance tests on the various products marketed by L.O.C. and its subsidiaries. In fact, no valid tests were ever conducted. Instead, impressive sham test results were elaborately fabricated for dissemination to prospective "distributors" by L.O.C. salesmen. Appellant James Wayne Bates served as the president of this subsidiary in addition to his other duties as L.O.C. pilot and assembler/custodian of the firm's tangible sales aids ("pitch books" and give-away promotional items).
The remaining Appellants were employed as field salesmen for one or more of the product "distributorships". During a brief training period, salesmen were routinely required to memorize a sales "pitch" which was rife with factual misrepresentations. In addition, they each were issued a large looseleaf binder known as a "pitch book" and were instructed to flash its contents to reinforce their verbal presentations. The "pitch book" allegedly contained copies of letters of commendation and photographs attesting to the upstanding character of L.O.C. (or its respective marketing subsidiary), testimonials from "satisfied" product distributors and commercial users, and "independent" consumer test results designed to convince prospects that they were dealing with a company of national stature. Unfortunately, upon close scrutiny (which the high pressure sales technique expressly discouraged) many of the items in the "pitch book" proved to be blatant forgeries or misleading pastiches.
Salesmen routinely made unfounded assertions concerning the effectiveness of the products 2 and the financial rewards to be realized by new "distributors". They frequently used assumed names and false corporate titles, sold geographically overlapping distributorships while representing their exclusivity, and claimed that extensive post-sale field support and advertising would be provided when none was forthcoming. They also placed prospects in telephone contact with paid operatives (called "singers") who posed as enthusiastic established distributors. Salesmen often represented that they would return after product delivery to help set up the new distributorship, knowing that post-sale contact was against company policy.
In sum, the duty of the L.O.C. salesman, in furtherance of the conspiracy, was to extract a substantial sum of money (in immediately negotiable form) from an unwary prospect during a single encounter and then disappear. For this service salesmen were handsomely compensated on a commission basis. Of the seven Appellants who sold distributorships, individual earnings ranged from $34,000 (for less than 5 months' work) to in excess of $90,000. The substantial number of sales which these commissions represent is suggested by the fact that the average "distributor" paid approximately $4,000 for his product inventory.
As new "distributors" began to realize that L.O.C. was not going to honor its commitments, the frequency of irate telephone calls to Nashville predictably increased. The perpetrators of the fraud anticipated this development by installing a unique facility in L.O.C.'s headquarters known as the "heat room". Calls were routinely directed to the "heat room" if the callers asked to speak to a mock employee identified by the salesmen as the appropriate contact at L.O.C. for follow up inquiries. The "heat room" was staffed with specially trained employees who attempted to mollify disgruntled "distributors" through obfuscation, delay, and, if all else failed, the making of additional false representations of convenience. 3 Through this insidious mechanism, the conspirators succeeded in forestalling criminal prosecution until $4.4 million of virtually worthless "distributorships" had been foisted upon more than 1,000 innocent victims.
Appellants advance seven grounds for reversal of their convictions, four of which merit discussion. Appellants claim that 1) the evidence was insufficient to prove their knowing and willful participation in the L.O.C. conspiracy; 2) remarks made by the prosecutor during rebuttal...
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