United States v. Halsey, Stuart & Co.

• Decision Date: 21 April 1933
• Citation: 4 F. Supp. 662
• Parties: UNITED STATES v. HALSEY, STUART & CO., Inc., et al.
• Court: U.S. District Court — Eastern District of Wisconsin

4 F. Supp. 662

UNITED STATES v. HALSEY, STUART & CO., Inc., et al.

District Court, E. D. Wisconsin.

April 21, 1933.

Edw. J. Gehl, U. S. Dist. Atty., of Milwaukee, Wis. (Forest A. Harness, Sp. Asst. to Atty. Gen., of counsel), for the United States.

Theodore W. Brazeau, of Wisconsin Rapids, Wis., and Kenneth E. Walser, of New York City, for defendants.

GEIGER, District Judge.

The indictment charges that defendants, "before and at the several times of committing the several offenses in this indictment hereinafter charged against them, devised a scheme and artifice to defraud and to obtain money and other property in the manner hereinafter described, from such members of a certain class of persons hereinafter referred to as the persons to be defrauded * * * whom said defendants could induce by means of certain false and fraudulent pretenses, representations and promises, to purchase certain gold debenture bonds of the Wardman Realty & Construction Company, a corporation organized and existing under the laws of the State of Maryland, of the par value of $2,500,000, dated September 1, 1928, * * * and represented by said defendants to be secured by the deposit with a trustee of all the common capital stock and $2,500,000 of general mortgage bonds of the Wardman Real Estate Properties, Inc., a corporation organized and existing under the laws of Maryland, said general mortgage bonds being an issue (here described) secured by a mortgage and deed of trust on real estate improved with income producing buildings including the furniture, furnishings and equipment belonging to said Wardman Real Estate Properties, Inc., to-wit, on the properties known as (here are enumerated eleven buildings situated in Washington, D. C.); and thus said persons to be defrauded were to be induced to part with their money and property to said defendants in the purchases of said gold debenture bonds, which said scheme and artifice, pretenses, representations and promises were to be and were in substance as follows, that is to say."

Without purpose now to pass on defendants' contentions that the foregoing as well as succeeding paragraphs are "surplusage," we may observe that the quoted excerpt reflects nothing more than the exercise of the entirely permissive right to describe an offense, or one or more of its ingredients, in statutory language. And while it is often stated that, under the statute in question (Cr. Code § 215 18 USCA § 338), the use of the mails is the gist or the gravamen, it cannot be denied that the condition of the statute, or of the offense, the wrongful use of the mails, is in the devising or attempting to devise an artifice or scheme to defraud, in whose effectuation resort was had to the mails — in other words, it would not be suggested that an appropriate characterization of such ingredient or condition may be dispensed with. For many years it has been assumed that statutory language alone cannot be resorted to as a compliance with the principle governing offenses of this character. As stated in U. S. v. Hess, 124 U. S. 483, 8 S. Ct. 571, 573, 31 L. Ed. 516:

"As a foundation for the charge, a scheme or artifice to defraud must be stated, which the accused either devised, or intended to devise, with all such particulars as are essential to constitute the scheme or artifice, and to acquaint him with what he must meet on the trial;" and that the ordinary doctrine respecting a charge in statutory language, "does not meet the difficulty here;" adding "Undoubtedly, the language of the statute may be used in the general description of an offense, but it must be accompanied with such a statement of the facts and circumstances as will inform the accused of the specific offense, coming under the general description, with which he is charged."

So there is no controversy on the general principle that the statute contained as the dual elements necessarily appearing in every charge (1) one or more of the categories of scheme or artifice enumerated; and (2) a use of the mails. Nor can there be controversy respecting the necessity of describing — and that means the disclosure of facts, elements, constituting — a scheme or artifice. It involves more than the statutory or general characterizations; so that, if the present indictment contained merely the quoted portion above, plus an allegation respecting the use of the mails, it would unquestionably fail on demurrer or on other appropriate test. The indictment is drawn in recognition of the necessity of a further statement and description of a "scheme or artifice to defraud for obtaining money or property by means of false or fraudulent pretenses, misrepresentations or promises." The averment that such a scheme was devised or that it existed does not suffice. The latter is a mere statement of the statutory fact but not of the constituent, or ultimate, though, as will be seen in many cases, quite evidentiary,¹ facts, which, being stated, disclose the scheme, the artifice, the pretenses, and their false and fraudulent character.

If, then, we proceed with the indictment in its statement of "The substance of the scheme" following the portion hereinbefore quoted, we find it averred that "it was a part" thereof: (1) That defendants "were to and did engage in an extensive bond selling campaign for the sale of and did sell," under the name of the corporate defendant, the gold debenture bonds, referred to; (2) "with the aid of circulars, booklets, salesmen's memoranda and advertisements furnished by the defendants in divers instances," to the persons to be defrauded, and (3) "of certain false and fraudulent pretenses, representations and promises contained therein," and (4) in divers oral communications, (5) were to obtain the moneys from said persons, and (6) were to and did convert them to the use of the corporate defendant, and (7) without rendering anything of any adequate, reasonable, appreciable, or commensurable value therefor.

Whatever may be said of this as an attempt to indicate the machinery, or method of carrying out a scheme, or as indicating sources of evidence which, being produced, may then be discerned to be of relevancy, nothing so alleged described the scheme, the false representations or pretenses. For example, to say that part of the substance of a scheme was found in certain false and fraudulent representations which in turn were contained in circulars, booklets, salesmen's memoranda, advertisements, or in divers oral communications, leaves the scheme, within the principles we have noted, undescribed, and therefore undisclosed and leaves the indictment as averring the existence of a devised scheme whose statutory category, not its character (as made up of constituent facts and elements), is merely restated.

The indictment next avers as "a further part" of said scheme and artifice to defraud, and in order to induce persons to believe that said gold debenture bonds were and would be (1) income producing investments until paid, and (2) good, safe and sound investments, they, the defendants "were to and did wilfully, knowingly and fraudulently conceal from, and misrepresent to, said persons * * * the actual and true earnings and income of said Wardman Realty & Construction Company" and said "Wardman Estate Properties, Inc." and "were to and did represent to said persons * * * that, on the basis of a then recent independent estimate, the annual consolidated earnings and income of (said two companies) would be sufficient after paying costs of operation to pay interest charges on the underlying funded debts of said company outstanding with the public, including said gold debenture bonds, and leave a substantial sum over and above; and which estimate, as said defendants well knew, was far in excess of the actual and true annual consolidated earnings and income of said companies and was misleading and fraudulent because, as said defendants well knew, the annual consolidated earnings and income of said (two companies), the true amount of which said defendants concealed from said persons to be defrauded as aforesaid, were insufficient and inadequate, after paying the costs of operation, to pay interest charges on the mortgage indebtedness of said companies outstanding with the public, including said gold debenture bonds."

It may be noted that apparently the purpose of this allegation is to set out that two things were done: First, a concealment of the actual and true earnings and income of these two companies; and, second, a representation that on the basis of a then recent independent estimate the consolidated earnings of the two companies would be sufficient to pay interest charges and leave a surplus. But apparently the relevancy of both of these are said to arise out of their use "to induce" belief in the income producing qualities of the bonds and their soundness as investments. As will shortly appear, the indictment proceeds later to make the income producing character of the bonds and their safety and soundness as investments the subject of specific representations said to be false and fraudulent pretenses and promises, "by and in circulars, booklets, salesmen's memoranda, advertisements, and oral communications." Such specific representations, three in number, are then set out in the indictment:

(1) That said gold debenture bonds were and would be income producing investments until paid.

(2) That said gold debenture bonds were and would be good, safe, and sound investments which would be paid on or before their maturity.

(3) That said gold debenture bonds were amply secured by the deposit with a trustee of all the common capital stock and $2,500,000 general mortgage bonds of said Wardman Real Estate Properties, Inc.

Now, in considering the questions arising upon the motion, there are two propositions urged by the government which, stated broadly, may be conceded and still not be helpful in disposing of the matter. Thus a rule, broadly speaking, that, when...