United States v. Bilotti

• Citation: 380 F.2d 649
• Decision Date: 13 July 1967
• Docket Number: Docket 30751.,No. 391,391
• Parties: UNITED STATES of America, Appellee, v. Armand BILOTTI, Stephen Harris, Michael La Marca and Harry Wasser, Appellants.
• Court: U.S. Court of Appeals — Second Circuit

380 F.2d 649 (1967)

UNITED STATES of America, Appellee, v. Armand BILOTTI, Stephen Harris, Michael La Marca and Harry Wasser, Appellants.

No. 391, Docket 30751.

United States Court of Appeals Second Circuit.

Argued April 4, 1967.

Decided July 13, 1967.

Certiorari Denied November 6, 1967.

COPYRIGHT MATERIAL OMITTED

Charles P. Sifton, Asst. U. S. Atty., Southern District of New York (Robert M. Morgenthau, U. S. Atty., and Daniel R. Murdock, and Michael W. Mitchell, Asst. U. S. Attys., Southern District of New York, on the brief), for appellee.

H. Elliot Wales, New York City, for appellant Bilotti.

Albert H. Buschmann, Jamaica, N. Y., for appellant Wasser.

Bernard J. Coven, New York City, for appellants Harris and La Marca.

Before WATERMAN, FRIENDLY and ANDERSON, Circuit Judges.

Certiorari Denied November 6, 1967. See 88 S.Ct. 308.

ANDERSON, Circuit Judge:

On March 4, 1965, a 48 count indictment was filed against fourteen defendants including the four appellants here. The first count charged an overall conspiracy to violate the registration and anti-fraud provisions of the Securities Act. Counts 2-21 dealt with violations of registration provisions and did not involve the four appellants here. Counts 22-48 charged appellants and other broker-dealers with violations of the anti-fraud provisions of § 17(a).¹ Seven of the fourteen defendants indicted were put to trial in the instant case — the four appellants, Hayutin, Nash and Stanley Scheftel, another broker-dealer who sold to the public. The Count 1 conspiracy was dismissed by the court as to appellant Bilotti; and the jury was unable to reach a verdict on the conspiracy count as to any of the other three appellants.² However, under Counts 22-48, the jury found each of the appellants guilty of three instances of violating § 17(a).

The evidence introduced by the Government may be found to have established the following facts. In September, 1962, the Allied Entertainment Corporation of America, Inc., a small popular music publishing business formed by two dentists, Dr. Herbert Breger and Dr. David Blistein, had an accumulated earnings deficit and was badly in need of working capital. Dr. Breger turned for aid to Marvin Hayutin, who had recently helped Breger salvage an initially unsuccessful public offering of Allied shares through an arrangement whereby over-the-counter brokers Anthony Gravino and Leon Nash sold Allied shares to the public in return for secret commissions from Breger while trader Fred Gearhart and others maintained and raised the market price of Allied by various manipulative practices. Hayutin now proposed to market a large amount of Allied shares without registration with the Securities & Exchange Commission³ by having Allied acquire two other corporations, Tap Records, Inc. and American Stereophonic Corporation. Tap Records at that time was wholly owned by Miklos Gafni. It was arranged for Harold Schreiber to acquire a 50% interest in Tap Records prior to the merger with Allied because it was thought that Schreiber could later market Allied shares without need to register them.⁴ Gafni also owned 25,000 of American Stereo's 105,000 outstanding shares. Prior to the merger a pool was formed by Gravino, Nash, Breger, Blistein, Hayutin and others to acquire shares of American Stereo; by the time of the merger, the pool had about 19,000 shares. In mid-December 1962, Allied acquired Tap Records by issuing 62,500 shares, of which 31,250 went to Schreiber and 31,250 to Gafni, and it acquired American Stereo by issuing 69,534 shares, of which 16,824 went to Gafni and some 13,000 to the pool. Gafni gave 14,660 of the Allied shares he received for American Stereo to two relatives, Salvatore and Marie Mazzareze. The desire to sell to the public the Allied shares held by Schreiber, the pool, and the Mazzarezes led to a search for additional "retailers"; it was this effort which brought the four appellant broker-dealers into the picture.

The appellants Wasser and Harris were principals of the brokerage firm of B. G. Harris & Co., Inc.⁵ Appellant Bilotti was a partner in the firm of Linder, Bilotti & Co. Appellant La Marca was president of the firm of J. P. Howell & Co., Inc. In December 1962-January 1963, each of the appellants⁶ was contacted by one or more insiders in the marketing of Allied shares, principally by Breger and Gravino. In each case it was agreed that the firm contacted would sell Allied shares to the public in return for secret commissions to be paid by the Allied insiders.⁷ In addition it was arranged for B. G. Harris and J. P. Howell to publish under their respective letterheads a market letter recommending Allied stock, and this was in spite of the fact that a previous Allied offering circular had showed a deficit of $80,000 as of May 31, 1962. Also certain traders helped keep up the market price of Allied by entering artificial bid and asked quotations. During the first six months of 1963, B. G. Harris sold 1,350 shares of Allied to the public; Linder, Bilotti, 11,850; and J. P. Howell, 2,450. The appellants obtained the Allied shares which they sold from various member firms where the shares had been placed by the Allied insiders. In each case the testimony was that appellants' firms had sold shares of Allied to a member of the public with fraudulent misrepresentations about the value of the stock and without disclosure of the commissions being received for the sales from Allied insiders. It is from the judgments entered on these verdicts that the present appeals are taken.

Appellant Wasser attacks the sufficiency of the evidence that he was a principal of the B. G. Harris firm, but there is no merit to this claim. Dr. Breger testified to Wasser's key role in the meeting in which it was arranged for B. G. Harris & Co., Inc. to sell Allied stock in return for commissions and to publish an Allied market letter under the firm's letterhead; Breger testified to a later meeting with Wasser during which Wasser asked for a list of American Stereo shareholders as prospects for additional Allied sales. Breger testified further that Stephen Harris, president of the Harris firm told him that he (Harris) would have to act as intermediary between Wasser and the Allied people. On cross-examination Dr. Breger testified that Wasser told him that B. G. Harris & Co., Inc., was really his (Wasser's) firm but that, because of certain problems, he could not be officially associated with the firm; he also testified on cross-examination that Harris told him that Wasser was "running the show" but that because of "some problems with the State Attorney General's office" Wasser could not be around the B. G. Harris office. Gravino testified that he met with Harris and Wasser on two occasions and each time paid them $250 for selling 500 shares of Allied. Wasser did not take the stand. Harris testified in substance that he knew Wasser personally but that Wasser had nothing to do with the B. G. Harris firm; Harris denied ever receiving any payment from Gravino. The jury was thus presented with a clear cut issue of credibility, and they chose to believe Breger and Gravino. United States v. Kelly, 349 F.2d 720, 766 (2 Cir. 1965). Wasser complains further that it was inconsistent for the jury to have convicted him on the substantive counts but not on the conspiracy count. Even if this were true, it would not be grounds for reversal. Dunn v. United States, 284 U.S. 390, 393, 52 S.Ct. 189, 76 L.Ed. 356 (1932); United States v. Andreadis, 366 F.2d 423, 434-435 (2 Cir. 1966), cert. denied, 385 U.S. 1001 (1967).

The appellant Bilotti contends that the court erred in admitting documentary evidence of nine sales of Allied shares by Linder, Bilotti & Co. to Mrs. Eily Della Chiesa in addition to the one sale to Mrs. Della Chiesa which was charged in the indictment.⁸ The sale in the indictment was for 1200 shares; the other nine totalled about 1450 shares. Evidence of other similar illegal activities offered for a relevant purpose, other than merely to show a defendant's bad character, is admissible. United States v. Jones and Mittelman, 374 F.2d 414, 419 (2 Cir. 1967). Of course, the trial court may in the exercise of its sound discretion exclude such evidence if its probative value is outweighed by its prejudicial character. United States v. Knohl, 379 F.2d 427, 438 (2 Cir. 1967); United States v. Braverman, 376 F.2d 249, 252-253 (2 Cir. 1967); United States v. Byrd, 352 F.2d 570 (2 Cir. 1965). In the present case the evidence of the nine additional transactions was of value in showing the scope of the scheme as it related to the transaction charged and to show the criminal purpose and intent. Farmer v. United States, 223 F. 903 (2 Cir.) cert. denied 238 U.S. 638, 35 S.Ct. 940, 59 L.Ed. 1500 (1915); United States v. Walker, 176 F.2d 564, 566 (2 Cir. 1949); United States v. Shurtleff, 43 F.2d 944, 947 (2 Cir. 1930). Moreover, Mrs. Della Chiesa's testimony put no emphasis on the total number of sales or shares; rather she simply described Bilotti's seeking her out and the representations he made in inducing her initially to purchase Allied stock.⁹ The trial judge did not abuse his discretion in admitting the evidence of other sales.

Appellants La Marca and Harris object to the cross-examination by the Government of a character witness for the defendant Hayutin. The Government put to this witness a series of questions as to whether or not he had ever heard of various unsavory activities and associations of Hayutin. The questions and answers made no reference to La Marca or Harris. Our scope of review in this area is very narrow:

"Both propriety and abuse of hearsay reputation testimony, on both sides, depend on numerous and subtle considerations difficult to detect or appraise from a cold record, and therefore rarely and only on clear showing of prejudicial abuse of discretion will Courts of Appeals disturb rulings of trial courts on this subject."

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