United States v. Clark, 72 Cr. 1356.

• Decision Date: 08 May 1973
• Docket Number: No. 72 Cr. 1356.,72 Cr. 1356.
• Citation: 359 F. Supp. 131
• Parties: UNITED STATES of America, Plaintiff, v. Jack L. CLARK et al., Defendants.
• Court: U.S. District Court — Southern District of New York

359 F. Supp. 131

UNITED STATES of America, Plaintiff, v. Jack L. CLARK et al., Defendants.

No. 72 Cr. 1356.

United States District Court, S. D. New York.

May 8, 1973.

Whitney North Seymour, Jr., U. S. Atty., Gary P. Naftalis, Asst. U. S. Atty., of counsel, New York City, for plaintiff.

Wilmer, Cutler & Pickering, Arthur F. Mathews, of counsel, Washington, D.C., Poletti, Freiden, Prashker, Feldman & Gartner, Paul R. Grand, of counsel, New York City, for defendants.

GRIESA, District Judge.

Defendant Clark moves to dismiss Count 62 of the indictment on the ground of lack of subject matter jurisdiction. Clark contends that Count 62 alleges an extraterritorial offense not covered by the statute relied upon — Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a).

Count 62 alleges that Clark and other defendants engaged in fraud "in the offer and sale of securities" — debentures of Four Seasons Overseas, N.V., a Netherlands Antilles corporation, with attached warrants for the purchase of the common stock of Four Seasons Nursing Centers, the parent corporation, of which Clark was chief executive officer. The indictment alleges that $15 million in such debentures and warrants were sold to European investors. The indictment alleges that the fraud was committed by the use of means and instruments of transportation and communication in interstate commerce and by the use of the mails.

The language of Section 17(a) is broad enough to cover the offense as alleged in Count 62. Section 17(a) provides that it shall be unlawful for any person in the offer or sale of any securities, by the use of instrumentalities of interstate commerce or the mails, directly or indirectly, (1) to employ any device, scheme, or artifice to defraud, or (2) to obtain money or property by means of misrepresentations, or (3) to engage in any transaction, practice, or course of business which would operate as a fraud or deceit upon the purchaser. Section 2(7) of the 1933 Act defines "interstate commerce" to mean trade or commerce in securities or any transportation or communication relating thereto among the several states "or between any foreign country and any state." Thus, the statute, on its face, would appear to cover a fraudulent scheme generated in the United States resulting in the sale of securities in Europe.

The question arises as to whether Section 17(a) must, for some reason, be given an interpretation more limited than its literal wording, so as to exclude the type of offense charged in Count 62. On this question, I rely principally on two cases in this Circuit, Schoenbaum v. Firstbrook, 405 F.2d 200 (2d Cir. 1968), and Leasco Data Processing Equipment Corporation v. Maxwell, 468 F.2d 1326 (2d Cir. 1972). The issues directly presented in these cases dealt with jurisdiction under Section 10(b) of the Securities Exchange Act. However, it would seem that the problems regarding extraterritoriality under § 17(a) of the 1933 Act and § 10(b) of the 1934 Act are essentially similar. Also, there is some specific discussion regarding Section 17(a) in the Leasco case.

Leasco makes it clear that the language of Section 17(a) is broad enough to cover securities of foreign issuers.

"What is here significant is that in a statute primarily designed to require registration of securities offered for sale by issuers and underwriters unless the securities or the transactions were exempted, § 17(a) applied to all fraudulent offers or sales of securities in commerce or by the use of the mails — whether the securities were registered, unregistered, or exempted, and, so far as the language goes, whether of domestic or foreign issuers." (468 F.2d at 1335)

Leasco was a civil damage action involving fraudulent acts committed in England and in the United States which induced the purchase by plaintiff's foreign subsidiary of stock in a British corporation. All of the transactions were executed in England. The Court first considered whether jurisdiction over the claim was precluded as a matter of foreign relations law, and concluded that such was not the case in view of the fact that significant fraudulent conduct was alleged to have occurred in the United States. 468 F.2d at 1334. The Court cited with approval Section 17 of Restatement (Second) of Foreign Relations Law of the United States (1965), which refers to a situation where X and Y are in state A and X makes a misrepresentation to Y, after which X and Y go to state B. Because of the prior misrepresentations, Y delivers money to X. The Restatement asserts that state A has jurisdiction to prescribe a criminal penalty for obtaining money by false pretenses.

The Court in Leasco then considered the question as to whether it should find that the statute was limited to narrower fields than would be permitted under foreign relations law. In this connection, the Court stated (p. 1336):

"Since Congress thus meant § 10(b) to protect against fraud

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