United States v. Dukow, Crim. No. 68-058.

• Decision Date: 02 August 1971
• Docket Number: Crim. No. 68-058.
• Citation: 330 F. Supp. 360
• Parties: UNITED STATES of America, Plaintiff, v. Albert N. DUKOW et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

330 F. Supp. 360

UNITED STATES of America, Plaintiff, v. Albert N. DUKOW et al., Defendants.

Crim. No. 68-058.

United States District Court, W. D. Pennsylvania.

August 2, 1971.

David B. Buerger, of Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Pittsburgh, Pa., for defendant Albert N. Dukow.

Richard L. Thornburgh, U. S. Atty., by Charles F. Scarlatta, Asst. U. S. Atty., Pittsburgh, Pa., for plaintiff.

OPINION AND ORDER

MARSH, Chief Judge.

The defendant, Albert N. Dukow, and three codefendants were charged on March 7, 1968, in an indictment with four counts of violating 15 U.S.C. § 77q(a), securities fraud; four counts of violating 18 U.S.C. § 1341, mail fraud; 18 U.S.C. § 2(a), aiding and abetting; and one count of violating 18 U.S.C. § 371, conspiracy to commit the substantive offenses of securities fraud, mail fraud and wire fraud (18 U.S.C. § 1343). His codefendants were Thomas S. Crow and Saul Brourman, the executive officers of Crow, Brourman and Chatkin (CBC), an over the counter brokerage firm, and William J. Abbott, the sales manager of that firm.

After a protracted trial, the jury acquitted Abbott of all counts; acquitted the other defendants of conspiracy; found Dukow guilty of the eight fraud counts; and found Crow and Brourman guilty of Counts 3 and 4 (securities fraud),¹ and not guilty as to the other fraud counts.

Dukow has moved for judgment of acquittal and, in the alternative, for a new trial.²

It is the opinion of the court that both motions should be denied.

The accusations stemmed from certain sales made by CBC over the counter of common stock of Champion Industries, Inc. At the trial it was proved that during 1962, Dukow acquired Champion Industries, Inc. (Champion), which was essentially a paper corporation with no substantial assets. In July, 1962, Champion purchased the Forsberg Manufacturing Company (Forsberg) for a price of $500,000; the down payment was $100,000 raised by a mortgage on Forsberg's equipment, admittedly a bootstrap operation, and promissory notes given for the remainder. The Forsberg stock was placed in escrow to secure payment. Default was declared by Forsberg in October, 1962; breach of warranties by Forsberg was claimed by Dukow for Champion; renegotiation of the purchase price was proposed and considered but was not consummated, and Forsberg repossessed the plant on February 19, 1963.

Dukow was the principal link between Champion and CBC; he met with Abbott and Crow in October, 1962; he addressed CBC's salesmen in Pittsburgh on January 24, 1963 upon the merits and prospects of Champion; and he presented to them a brochure. Undoubtedly, he was then aware of Champion's poor financial status, nebulous prospects for acquiring subsidiaries, the problems at the Forsberg plant, including the breach of warranties, and the lurking danger of its being repossessed for non-payment, none of which did he reveal to the CBC salesmen. Subsequently, he sent reports and statements about Champion's financial condition, and engaged in telephone communications with the officers of CBC. Dukow was CBC's principal source of information concerning Champion, its stock and Forsberg.

There was evidence direct and circumstantial from which reasonable inferences could be drawn that Dukow engaged with the officers and employees of CBC in a scheme or artifice to defraud investors by the sale of Champion stock and the use of the mails in furtherance thereof; and that this scheme began in 1962 and continued until at least the end of March, 1963. Dukow was the major stockholder and became president of Champion and remained such until April, 1963. CBC participated in making the market for Champion stock, beginning to retail it in January, 1963, and continuing to sell it after March 7, 1963.

After learning that Forsberg was repossessed on February 19, 1963, CBC suspended all sales of Champion stock, but upon subsequent investigation and consultations with Dukow commenced selling it again on March 15, 1963. Crow and Brourman testified that the sales of Champion stock on and after March 15th were resumed only after they had been assured by Dukow that he had arranged for the reacquisition of Forsberg. The reacquisition never came to pass. The adverse facts were not revealed to investors.

Dukow did not make any stock sales personally. All were made by the brokerage personnel of CBC.

There was proof that the mails were used by CBC in sending confirmation of sales of Champion stock to purchasers on March 15, 1963, on May 2, 1963, and sending a stock certificate in June, 1963, in furtherance of the scheme to defraud.

Motion for Judgment of Acquittal

The reasons stated in support of this motion are:

"1. There was no evidence of illegal acts within the period not barred by the statute of limitations.

"2. As to Counts 2 and 5 to 9, the verdict was inconsistent with the finding of not guilty for codefendants.

"3. As to Counts 5 and 9, there was no evidence to warrant submitting the case to the jury.

"4. As to all counts, there was insufficient evidence to warrant submitting the case to the jury."

In our opinion there was sufficient evidence to warrant a finding by the jury of a scheme or artifice to defraud investors in the sale of Champion stock, which finding established not only violations of the Securities Act (Counts 2 through 5) but also the Mail Fraud Act (Counts 6 through 9). We are also of the opinion that there was evidence, direct and circumstantial, of acts or omissions in furtherance of the scheme on the part of Dukow within the statutory period, i. e., after March 7, 1963. Schemes to defraud may be sustained on circumstantial evidence standing alone; "a common purpose and plan may be inferred from a `development and a collocation of circumstances.'" Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680; United States v. Migliorino, 238 F.2d 7 (3d Cir. 1956); United States v. Georga, 210 F.2d 45, 48 (3d Cir. 1954).

Even without proof of acts on the part of Dukow within the statutory period, he could still be properly convicted and thus is not entitled to judgment of acquittal. Dukow was charged and proved to have engaged in a scheme or artifice to defraud. The scheme was a continuous one. As a participant in a continuing scheme to defraud, he is bound by the acts of his co-schemers so long as the scheme remains in existence. There is no doubt that the scheme remained in existence and Champion stock was sold after March 7, 1963 and into April and May, 1963.

In Pinkerton v. United States, 328 U. S. 640, 647, 66 S.Ct. 1180, 1184, 90 L.Ed. 1489, it was stated:

"A scheme to use the mails to defraud, which is joined in by more than one person, is a conspiracy."

Pinkerton cites Blue v. United States, 138 F.2d 351, 358 (6th Cir. 1943), where it was stated:

"When a scheme to defraud is shared in by two or more, it becomes a conspiracy; the rules of evidence are the same as where a conspiracy is charged (Robinson v. United States, 9 Cir., 33 F.2d 238); and the act of each party in furthering the common scheme is the act of all. Davis v. United States, 5 Cir., 12 F.2d 253. If one's intent is to defraud when he joins a dishonest scheme, he becomes a part of the scheme, although he may know nothing but his own share in the aggregate wrongdoing. Silkworth v. United States, 2 Cir., 10 F.2d 711. Formal agreement is not necessary, it being sufficient if there is an association in the purpose to defraud."

At page 359:

"Where a fraudulent scheme is entered into by several parties, and there is evidence from which the jury can properly infer that the use of the mails by one of the defendants was in furtherance of the fraudulent scheme, and that the scheme was in existence prior to the mailing of the letter, the mailing is, in law, the act of all the defendants." (Emphasis supplied.)

Dukow emphasizes that there was no evidence that he participated in the specific sales of Champion stock. The fact that he may not have been a party to the sales which were made by the CBC personnel pursuant to the scheme does not exonerate him from the charges of securities fraud and mail fraud. If Dukow with criminal intent to defraud joined the scheme and thus became a part of it, as the verdicts establish, he is guilty although he may have known nothing "but his own share in the aggregate wrongdoing."

When two or more parties are found to have joined in a common scheme, all are responsible for the acts and declarations of each co-schemer in furtherance of the scheme while it is in progress, and this is so regardless of whether conspiracy is...