United States v. Colasurdo, No. 1085-1088

• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Writing for the Court: FRIENDLY, , and LUMBARD and OAKES, Circuit
• Citation: 453 F.2d 585
• Parties: UNITED STATES of America, Appellee, v. Lewis L. COLASURDO et al., Appellants.
• Docket Number: No. 1085-1088,Dockets 71-1373 to 71-1376.
• Decision Date: 06 December 1971

453 F.2d 585 (1971)

UNITED STATES of America, Appellee,
v.
Lewis L. COLASURDO et al., Appellants.

Nos. 1085-1088, Dockets 71-1373 to 71-1376.

United States Court of Appeals, Second Circuit.

Argued July 13, 1971.

Decided December 6, 1971.

453 F.2d 586

Paul R. Connolly, Washington, D.C., Morrison, Paul & Beiley, New York City (Edward Bennett Williams, Washington, D.C., Peter H. Morrison, New York City, John Vardaman, Jr., Washington, D.C., Myron J. Greene and Elkan Abramowitz, New York City, of counsel), for appellant Colasurdo.

Charles A. Stillman, Botein, Hays, Sklar & Herzberg, New York City for appellants McLaney, Cipo and Whorl.

H. Thomas Coghill, Asst. U. S. Atty. (Whitney North Seymour, Jr., U. S. Atty. for the Southern District of New York, and Jack Kaplan, John A. Lowe, Barbara A. Rowan, James P. Tierney, and Peter F. Rient, Asst. U. S. Attys., of counsel), for appellee.

Before FRIENDLY, Chief Judge, and LUMBARD and OAKES, Circuit Judges.

OAKES, Circuit Judge:

This very complex, exceptionally well presented appeal raises a series of questions—going both to the conspiracy and the substantive counts—that requires, as did United States v. Wolfson, 437 F.2d 862 (2d Cir. 1970), a rather extensive recital of the facts. This recital is especially necessary to understand the Wolfson and Grunewald¹ points made by appellants in this SEC case, which took 12 weeks to try, with over 50 witnesses and 700 documentary exhibits, a correspondingly extensive record, and briefs, on appeal.

In essence, the case involves Lewis Colasurdo and certain of his associates who used an asset of Pakco Companies, Inc. ("Pakco"), an over-the-counter company, to purchase two blocks of stock—a controlling interest—of Crescent Corporation ("Crescent"), a company listed on the New York Stock Exchange. The resultant criminal charges involve concealment

453 F.2d 587

from the Securities and Exchange Commission of that purchase, the concealment being effectuated by a series of sham transactions followed by false reports, statements and testimony to and before the SEC, and other attempts to obstruct "private" and "public" SEC investigations

The Pakco asset used was a 2500 acre blueberry plantation located in Atlantic County, New Jersey. Acquired originally from appellant Colasurdo at the time of Pakco's organization, the plantation was carried on the books of Pakco at one dollar although it was appraised in 1961 at $2.5 million. Appellant Colasurdo, who with his two brothers owned approximately 42 per cent of this publicly held corporation, also was its president until June 1965, when he assumed control of and became president of Crescent. Pakco's and subsequently Crescent's vice president was one Bronsen, a fugitive from justice and not an appellant here. Pakco's controller, and subsequently Crescent's treasurer, was appellant Whorl. Appellants Cipo and McLaney were neither officers nor directors of Pakco or Crescent but were participants in some of the transactions by which the Pakco plantation ultimately became an asset of Crescent's and by means of which a controlling interest in Crescent was acquired by appellant Colasurdo.

The control of Crescent was obtained by the purchase of two large blocks of Crescent stock. The first was the Floersheimer block, consisting of 436,400 shares, which was sold to ALCA Industries, Inc. ("ALCA"), a corporation solely owned by Colasurdo and formed for that purpose. The second was the Mencher block, consisting of 125,000 shares, which was sold to BLCB Industries, Inc., a corporation owned by Bronsen and formed for that purpose. ALCA's purchase price for the Floersheimer block was $15 per share or $6,546,000, one-third to be paid at closing, June 18, 1965; one-third in June 1966; and one-third in June 1967. BLCB's purchase price for the Mencher block was also $15 per share or $1,875,000, payable $1,005,000 on the same closing date, June 18, 1965, and the balance in three equal promissory notes of $290,000 each, payable at six month intervals thereafter. Financing of the ALCA down payment was obtained by ALCA's borrowing $218,200 from Pakco and the balance of $1,963,800 from the First Pennsylvania Bank and Trust Company. The bank's loan was secured by Colasurdo's personal guarantee and by escrow arrangements involving both ALCA stock and the Crescent stock acquired. Financing of the BLCB acquisition was by way of a $100,000 loan to Bronsen by Pakco, a $900,000 loan by the Franklin National Bank to Bronsen guaranteed by Colasurdo and further secured by the Crescent stock acquired, and the guarantee by Colasurdo and his wife of the three notes of BLCB due for the purchase price.

The Pakco asset, the blueberry patch, then became the center of the following transactions. Its sale to one Charles E. Meyers, or his nominee, for $3,850,000 was authorized by the Pakco board on May 19, 1965, with $500,000 to be paid for the blueberry crop in cash by December 1, 1965, and a five year installment note ($670,000 each installment) being taken for the $3,350,000 balance on the land. The sale was to be without security to Pakco except for a guarantee on the note by appellant McLaney. On May 31, 1965, the sales agreement was entered into and Meyers assigned his right to purchase to appellant McLaney. McLaney took title in the name of Caletta Blueberry Co., Inc. ("Caletta")—a corporation formed August 6, 1965, for the purpose of the acquisition—on August 9, 1965, by deed recorded on September 23, 1965. Appellant Whorl (who it will be remembered was Pakco's controller) was secretary-treasurer of Caletta.

But Caletta was not to hold title to the popular, if ubiquitous, blueberry plantation for long. Rather, by agreement dated August 31, 1965, it was sold to Makepeace, Inc. The sales price was $3.9 million, with $500,000 to be paid one day before the first Meyers payment of the same amount to Pakco' was due,

453 F.2d 588

and the balance in five equal installments of $680,000 payable three months before and in a sum $10,000 greater than the McLaney guaranteed note to Pakco. The deed from Caletta was recorded on the same day, September 23, 1965, as the deed to Caletta. Makepeace, Inc., it may be noted, was wholly owned by appellant Cipo, a former employee of a Pakco subsidiary. The same attorney, Israel Finkelstein, who was a Philadelphia collection attorney for Pakco, formed Caletta and formed Makepeace, Inc., reserving the latter's corporate name on June 8, 1965, and incorporating it on July 21, 1965, before Caletta's date of corporate birth. Colasurdo, who was by June 29, 1965, president and firmly installed in control of Crescent (constituting with Bronsen, appellant Whorl and another nominee four of Crescent's seven directors), commenced "negotiating" with Makepeace for the sale of the blueberry plantation to Crescent. The "negotiation" was quickly consummated; Crescent agreed, on September 15, 1965, to pay Makepeace $4 million, consisting of $600,000 in cash, 125,000 shares of Crescent stock valued at $1.5 million, and an installment promissory note for $1.9 million with a right of prepayment by Crescent. Attorney Finkelstein represented Makepeace at the closing, which took place (subject to escrow for title clearance) on September 25, 1965—two days after the recording date for the deeds to Caletta and Makepeace. Crescent then prepaid the $1.9 million note. Makepeace in turn paid $500,000 to Caletta which paid it to Pakco. The balance of $2 million which Makepeace now had as cash was transferred to an account of Delaware & New Jersey Properties, Inc. ("Delaware & New Jersey"), a corporation formed by Bronsen, which transferred the funds to ALCA (Colasurdo's Crescent stock acquisition company) which paid its indebtedness to First Pennsylvania

The Makepeace-to-Delaware & New Jersey-to-ALCA transaction was explained by appellant Colasurdo as the proceeds of a loan to him from Six M's Ltd., a Bahamian corporation headed by the lawyer-Premier Lyndon O. Pindling, who—because he is said to have said he did not want to take $2 million out of the United States (having just sold a $2 million debenture of Makepeace to Cipo) and bring it back again—was willing to take an assignment of Bronsen's interest in Delaware & New Jersey so as to facilitate the loan to Colasurdo.

Ultimately, in March and April of 1967, Pakco acquired the ALCA and BLCB Crescent stock from those corporations and the 125,000 shares of Crescent held by Caletta (thereby reducing Caletta's obligation to Pakco) and thereby had a controlling interest in Crescent. This Pakco subsequently sold for a profit of over $1.6 million.

In sum, by concealing the fact that Pakco was actually selling the blueberry plantation to Crescent, Colasurdo was able to gain control of Crescent by the use of Crescent's own money. Moreover, because Crescent made immediate payment of its obligation to Makepeace, Colasurdo was able to use the $2 million received from Crescent to repay ALCA's loan from First Pennsylvania. Meanwhile it would be five years before Caletta would have to repay Pakco. Additionally, because each dummy corporation made a profit on each of the "sales," McLaney and Cipo each realized a substantial sum from their participation in the scheme.

Commencing in July 1965, Crescent filed with the SEC and New York Stock Exchange its Form 8-k and 10-k reports. The 8-k Report for June 1965, prepared and signed by appellant Whorl, stated:

On June 18, 1965, Alca Industries Corporation acquired in a private transaction 436,400 shares of the registrants sic common stock constituting 28% of the outstanding shares in this class and 25% of all outstanding voting stock.

This report did not refer to Colasurdo's ownership of ALCA or to BLCB's purchase. (It was the subject of Count 22, charging false and misleading statements

453 F.2d 589

to the SEC, on which Colasurdo and Whorl were found guilty.)

Crescent's Form 8-k Report for September 1965, likewise prepared and...