U.S. v. Wenger, 2:99CR260PGC.
| Decision Date | 14 November 2003 |
| Docket Number | No. 2:99CR260PGC.,2:99CR260PGC. |
| Parties | UNITED STATES of America, Plaintiff, v. Jerome M. WENGER Defendant. |
| Court | U.S. District Court — District of Utah |
Jerome H. Mooney, Esq., Mooney Law Firm, Salt Lake City, UT, Vincent Verdiramo, Esq., Verdiramo & Verdiramo, Jersey City, NJ, John H. Weston, Esq., Weston, Garrou & Dewitt, Los Angeles, CA, for defendant.
Stewart C. Walz, Esq., Assistant United States Attorney, Salt Lake City, UT, Leslie Hendrickson Hughes, Esq., Securities & Exchange Commission, Denver, CO, for plaintiff.
This matter is before the court on the defendant's motion to dismiss counts 1 and 2 of the indictment against him. On May 26, 1999, defendant, Jerome M. Wenger, was indicted in a three-count indictment for his role in promoting the sale of stock in a publicly-traded company, Panworld Minerals. Counts 1 and 2 of the indictment alleged that Wenger promoted the stock in a newsletter and on radio programs without disclosing the fact that he had been given millions of shares of the stock, in violation of the disclosure requirements of section 17(b) of the Securities Act of 1933.1 Count 3 alleged that Wenger committed securities fraud in violation of another provision of the Act2 by recommending that investors purchase the stock while at the same time he was selling the stock.
Before trial, Wenger filed a motion to dismiss counts 1 and 2 of the indictment. Wenger's motion contended that the disclosure requirement of section 17(b) violated the First Amendment. Section 17(b) requires those who promote stock to describe the consideration that they have received for that promotion. Wenger contended that this requirement is facially unconstitutional because it constitutes inappropriate government-compelled speech. Wenger further argued that the disclosure requirement is unconstitutionally vague and overbroad.
The court heard oral argument on this matter on July 23, 2003, and issued a brief order denying the motion. The court promised a more detailed opinion after trial. From August 19-26, 2003, the matter was tried to a jury. They returned a verdict of guilty on all three counts.
In the wake of the jury verdict of guilty on all three counts — including count 3 alleging securities fraud — Wenger's challenges to counts 1 and 2 become less salient. So far as the court can determine, even if counts 1 and 2 were set aside, the sentencing guidelines calculations would be the same and the possible punishments would not be affected. For the sake of a complete record, however, the court has written this opinion explaining why Wenger's challenges to the statute are not well-founded.
Section 17(b) complies with the First Amendment. The statute regulates only commercial speech and, therefore, is not subject to strict scrutiny. Instead, disclosure requirements in the commercial speech context need only be "reasonably related to the State's interest in preventing deception of consumers."3 Because requiring those who tout securities to disclose their compensation is reasonably related to the government's strong interest in preventing deception of investors, section 17(b) does not run afoul of the First Amendment. Nor does the statute, on these facts, suffer from vagueness or over-breadth defects. Accordingly, the court DENIES Wenger's motion to dismiss.
Wenger challenges the sufficiency of an indictment for failure to state an offense, and therefore this court is generally bound by the factual allegations contained within the four corners of the indictment.4 After the filing of the motion to dismiss based on First Amendment grounds, the court asked the parties to provide the court with copies of the newsletters and transcripts of the radio shows that were the subject of the indictment. Neither party objected to the court's request. Because the content of the newsletters and the transcripts was undisputed, and neither party objected to the court's review of this information, this court can consider this evidence that was — at least arguably — outside of the "four corners of the indictment."5
Proceeding on that basis, Wenger, published a newsletter known as The Next SUPERStock. The Next SUPERStock made investment recommendations to potential purchasers of very low priced stocks. Panworld Minerals International Inc. ("Panworld"), a publicly-traded company headquartered in Salt Lake City, Utah, was one of Mr. Wenger's recommended stocks.
During the summer of 1994, Wenger publicized Panworld stock. In The Next SUPERStock, Wenger gushed, "... this development stage company is making significant progress on two distinct types of mining operations."6 He further stated, "Panworld ... plans to follow a systematic, strategic plan designed to move the company out of development and into full and dynamic profitability."7 Wenger concluded the article with a recommendation, 8
Similarly, on June 18, 1994, Wenger touted Panworld on a radio show in a discussion with David Hesterman, another consultant to Panworld. Wenger commented, 9
Wenger also participated in a radio show with Bob Weeks. Wenger describes being "impressed" with Panworld four different times during the show.10
According to the indictment, and unbeknownst to Wenger's audience, Wenger was lavishly compensated for these favorable reports. Prior to the newsletters and radio shows, Wenger contracted with Panworld to provide financial public relations, consulting, and advisory services. In exchange for his services, Mr. Wenger was to receive as many as 5,500,000 shares of PanWorld stock. Between February 10, 1994, and April 15, 1994, Panworld in fact issued 3,100,000 shares to Wenger. Shortly after these communications indicating the audience should buy Panworld stock, Wenger sold portions of his shares.
During the interviews, Wenger did not disclose he owned any shares of Panworld stock. Instead, he only briefly acknowledged that Panworld used him as a "consultant." Similarly, in his newsletter, Wenger made only the following boilerplate disclosure:
Officers, directors, editors, writers, or employees of The Next SUPERStock may from time to time purchase, sell or have a position in securities of the company discussed in this report, and these positions may be increased or decreased in the future. In some cases, The Next SUPERStock or its employees may have a consulting arrangement with some of the companies and may provide a host of services for a fee.
Wenger did not move to dismiss the indictment based on the sufficiency of these disclosures.
On May 26, 1999, the government obtained a three-count indictment against Wenger in the District of Utah. Counts 1 and 2 alleged Wenger described the Panworld stock for consideration of 5,500,00 shares, without disclosing receipt — or future receipt — of the consideration. Count 3 alleged Wenger omitted material facts when making statements about Panworld stock that operated as a fraud in connection with the purchase or sale of Panworld stock.
Wenger was also indicted, prior to the Utah case, in the Southern District of New York in April 1998, for a similar scheme involving a company named Transco which he had been touting on his radio show "The Next SUPERStock."
In 2001, Wenger was again indicted, this time in the Southern District of Florida for a similar scheme involving Omnigene Diagnostics, Inc. According to the Florida indictment, Wenger agreed to promote Omnigene stock on his radio show in exchange for 66,000 shares of Omnigene. Wenger agreed to a Rule 20 transfer of these two indictments to the District of Utah for a single consolidated guilty plea. Arrangements were made and these indictments were, in fact, all transferred to the District of Utah pursuant to Rule 20 of the Federal Rules of Criminal Procedure, a process that took considerable time. In addition to the transfer, Wenger obtained over two years of continuances and delays in consummating the guilty plea he had indicated he would enter. Finally, in March 2003, he ultimately refused to enter a plea. Instead, he requested a trial on all charges. The two matters originating outside Utah were returned to their originating courts and this matter was set for trial on August 19, 2003.
Wenger's motion challenges counts 1 and 2 of the indictment against him, raising First Amendment challenges to section 17(b) of Securities Act. Section 17(b) provides:
It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, or such consideration and the amount thereof.11
Wenger argues that section 17(b)'s requirement that he "fully disclos[e]" the consideration that he had received for promoting a stock violates the First Amendment. The court...
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