United States v. Hoffman, 16410.

• Decision Date: 08 December 1969
• Docket Number: No. 16410.,16410.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Charles HOFFMAN, Jr., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

415 F.2d 14 (1969)

UNITED STATES of America, Plaintiff-Appellee, v. Charles HOFFMAN, Jr., Defendant-Appellant.

No. 16410.

United States Court of Appeals Seventh Circuit.

July 18, 1969.

Rehearing Denied August 13, 1969.

Certiorari Denied December 8, 1969.

Thomas P. Sullivan, Hugh M. King, Chicago, Ill., for defendant-appellant Charles Hoffman, Jr.; Raymond, Mayer, Jenner & Block, Chicago, Ill., of counsel.

Thomas A. Foran, U. S. Atty., Richard G. Schultz, Asst. U. S. Atty., Chicago, Ill., for plaintiff-appellee. Michael B. Nash, Michael B. Cohen, Asst. U. S. Attys., of counsel.

Before CASTLE, Chief Judge, KNOCH, Senior Circuit Judge, and KERNER, Circuit Judge.

Certiorari Denied December 8, 1969. See 90 S.Ct. 431.

KERNER, Circuit Judge.

Charles Hoffman, Jr. (defendant-appellant) was indicted on five counts for violations of Title 18 U.S.C. §§ 1343 (Count 1), 1341 (Count 2), 1341 and 43 (Count 3), 371 (Count 4) and 2314 (Count 5) (federal mail and wire fraud, conspiracy, and interstate transportation of funds obtained by fraud). The jury returned a verdict of guilty on Counts 1, 2 and 4 and judgment was entered by the Court committing the defendant to a term of ten (10) years and a fine of Ten Thousand ($10,000) Dollars on Count 4, and probation for a period of five (5) years after release from incarceration on Counts 1 and 2, conditioning the probation with the following: "in addition defendant is required to make restitution in an amount agreed upon or ascertained by the Director of Insurance of the State of Illinois."

The transactions presented by the Government are intricate and complicated, involving defendant Charles Hoffman, and defendant Rufus R. McLarty. McLarty was discharged from prosecution before the conclusion of the trial, and Hoffman's motion for judgment of acquittal as to Count 3 (conspiracy) was granted.

This case involves the sale and manipulation of various insurance companies and agencies and their assets. The indictment alleges the criminal acts began "on or about December 1, 1963." Hoffman testified on direct examination that "in late 1960" he purchased all of the stock of RCD Insurance Agency (RCD Agency). In 1960 Multi-State Inter-Insurance Exchange (Multi-State) was an existing insurance reciprocal association (previously known as Rural Inter-Insurance Exchange), an aggregation of people who exchange contracts of insurance. A reciprocal is not a corporation, but is an association of individual underwriters, and each underwriter is liable for his share of any losses. The reciprocal is the property of the policyholders and, in this respect, is comparable to a mutual company.

RCD Management Inc. (RCD Management) was the attorney-in-fact for, and general manager of, Multi-State and its sales agency, RCD Agency. Multi-State sold only high-risk automobile policies through RCD Agency for which sales, RCD Agency was to receive a commission. RCD Management, for its services as attorney-in-fact was to receive a 12% commission on premiums of all policies written by Multi-State and to be paid by Multi-State to RCD Management.

The Illinois Insurance Code requires all insurance writers to maintain a minimum surplus to cover unexpected contingencies. Failure to maintain this surplus requires notice to the Insurance Department and, should the assets be impaired, no new policies may be written. In the summer of 1963, the Illinois Department of Insurance commenced an examination of Multi-State, whose books reflected a failure to pay RCD Management the attorney-in-fact fees and the amount owed was not entered as a liability. The unpaid commissions totaled approximately $200,000, which liability impaired the reciprocal's surplus. Hoffman, the owner of all of the stock of RCD Management, stated he would waive all fees and commissions and an affidavit of waiver was filed on July 16, 1963; thereafter Multi-State was allowed to continue in business.

The Department of Insurance continued the examination of Multi-State. Listed as an asset were $50,000 in bonds issued by Griffin Finance, an unidentifiable entity. Hoffman and Vaughn Woodruff, his attorney, were informed by the Department that a cease and desist order would be issued against Multi-State because of impaired assets.

On November 29, 1963, the Department filed a complaint against Multi-State seeking to enjoin it from doing any business, and alleging violation of the Insurance Code. On December 6, 1963, the Circuit Court of Cook County ordered the books and property seized by the Insurance Department returned and entered an order allowing Multi-State to continue business if it would comply with certain conditions:

1. Cease and desist writing policies of insurance.

2. Cancel all outstanding insurance policies within a reasonable time.

3. Expeditiously dispose of all claims.

4. Prior to resuming the writing of new policies, notify the Director of Insurance of that intention and file a statement of condition which will be examined.

No other order was entered in the Circuit Court until an order of liquidation entered September 11, 1964.

Late in 1963, Hoffman began negotiations with McLarty for the sale of RCD Management and RCD Agency for the sum of $333,333, culminating in the transfer of ownership on February 4, 1964, and with it the resultant control of Multi-State. The sale was closed at a bank located in Reynolds, Georgia. Simultaneously, McLarty, on the representation of Hoffman that Multi-State was solvent, ordered a check drawn in the sum of $335,000 from the account of Multi-State payable to RCD Agency. RCD Agency, on McLarty's order, drew a check for $333,333 to Hoffman for the purchase price. The credit transactions were handled by wire and mails.

During the month of January, 1964, Hoffman withdrew monies of Multi-State from various banks in Chicago which were deposited to his personal accounts in the First National Bank of Evanston, or transferred them to a new Multi-State account newly opened in Kingland, Georgia. The dates and amounts are not controverted.

Evidence of additional inter-corporate activities and exchanges of assets and stocks were introduced into evidence covering a period prior to December 1, 1963, and extending into July, 1964. Some of these transactions relate to Multi-State, others to entities controlled by Hoffman.

On November 1, 1963, Hoffman presented to George Bloss, president and director of RCD Management, prepared minutes of a Board of Directors meeting of RCD Management. The minutes stated that the Directors had voted that RCD Management would sell its law library and two Chevrolet automobiles to So-Jess Management, Inc. (So-Jess) (an Illinois corporation owned by Hoffman which handled claims for Multi-State and Progressive General Agency), in exchange for office space and services to be rendered by So-Jess in the future. Bloss signed the minutes, though he testified no such directors meeting took place and no services were rendered to RCD Management by So-Jess. The value assigned to the library was $1,300 and $1,050 as the value of the automobiles subject to mortgages, though the mortgage payments were made by Multi-State in November and December, 1963, and January, 1964.

Early in 1963, Hoffman purchased the building at 180 W. Randolph, Chicago. The following were moved into the building: Multi-State, RCD Management, RCD Agency, So-Jess Insurors Holding Corporation (an Illinois corporation, owned by Hoffman and his wife, which held stock in various entities involved), Progressive General Insurance Company (PGI) (an Illinois stock insurance company controlled and owned by Insurors Holding Corporation), and Progressive General Agency (PGA) (an Illinois corporation owned by Hoffman which was sales agent for PGI). Hoffman remodeled the building, improvements being paid for by PGA and RCD Management in the total sum of $39,763.32.

In September, 1963, RCD Management, on behalf of Multi-State, resolved to purchase these leasehold improvements for $83,000. Bloss, who signed the minutes at Hoffman's request, testified he did not vote on the resolution. The improvements were paid for by the transfer of Multi-State funds: $43,000 to PGA and $40,000 to RCD Agency.

A resolution of RCD Management on behalf of Multi-State, dated November 25, 1963, assigned the Multi-State leasehold at 180 W. Randolph to PGI immediately. Bloss, who signed the minutes, again testified he did so at Hoffman's direction, although no meeting took place. Prior to November 25 and until January 29, 1964, Multi-State made payments for improvements of the leasehold, which inured to the benefit of PGI in the sum of $116,154. This sum invested by Multi-State in the leaseholds was abandoned to PGI when Multi-State was removed from the premises as agreed in the contract of sale to McLarty, though McLarty had not been informed of the improvements paid for by Multi-State.

On December 30, 1963, RCD Agency loaned $20,500 to PGA. On the following day, an additional $69,250 was loaned to PGA. This sum of $89,750 belonged to Multi-State, and was offset under a contract between RCD Agency and PGA whereby four percent of RCD Agency's gross sales premiums would be paid to PGA for management and services. A computation of this contract of January 2, 1963, indicated a sum of $87,013.28 due, which was to be computed monthly, but had not been entered on the books of RCD Agency until December 31, 1963, and did not appear on the books of PGA until June 30, 1964. Bloss testified he knew of no services performed by PGA for RCD Agency during 1963.

The $87,013.28 owed by RCD Agency to PGA was offset by the $89,750 RCD Agency loaned to PGA, leaving a balance of about $2,500. After February 4, 1964, when McLarty owned the stock of RCD Agency, he agreed to convey to PGA an installment note with a face value of $50,000, of which Hoffman was the obligor, "as an offset against the amount due to Progressive General Agency, Inc. from RCD Agency, Inc., relative...