United States v. Houlihan

• Decision Date: 19 May 1964
• Docket Number: No. 228,Docket 28407.,228
• Parties: UNITED STATES of America, Appellee, v. John J. HOULIHAN and Martin Legere, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

332 F.2d 8 (1964)

UNITED STATES of America, Appellee, v. John J. HOULIHAN and Martin Legere, Defendants-Appellants.

No. 228, Docket 28407.

United States Court of Appeals Second Circuit.

Argued April 13, 1964.

Decided May 19, 1964.

Allen S. Stim, of Curran, Mahoney, Felix & Stim, New York City, for defendant-appellant Houlihan.

Charles C. Parlin, Jr., of Shearman & Sterling, New York City (Michael J. Aratingi and Thomas F. Ruhm, New York City, on the brief), for defendant-appellant Legere.

Robert J. McGuire, Asst. U. S. Atty. (Robert M. Morgenthau, U. S. Atty., and Michael S. Fawer and Andrew T. McEvoy, Jr., Asst. U. S. Attys., on the brief), for the United States.

Before WATERMAN, FRIENDLY and HAYS, Circuit Judges.

HAYS, Circuit Judge.

Defendants, Houlihan and Legere, appeal judgments of conviction entered on a jury verdict finding them guilty on thirteen counts of mail fraud, 18 U.S.C. § 1341 (1958), wire fraud, 18 U.S.C. § 1343 (1958), and interstate transportation of stolen securities, 18 U.S.C. § 2314 (1958). On the first six counts, the mail and wire fraud counts, Houlihan and Legere were each given concurrent sentences of 3 and 1½ years imprisonment. On the remaining seven counts, sentence was suspended, and defendants were placed on probation for a period of three years to commence at the termination of the sentence imposed on the first six counts.

Houlihan contends that (1) the trial judge committed error in excusing a juror in the absence of defendants and their counsel, (2) the evidence was insufficient to support his conviction, (3) there was a fatal variance between the scheme to defraud alleged in the indictment and the proof adduced at the trial, and (4) a mistrial should have been declared because of the admission of prejudicial proof regarding motive, the antagonistic defense of a co-defendant, James R. Freeling, who was acquitted by the jury, and the inability of the jury to evaluate properly the evidence with regard to the individual defendants. Legere joins in Houlihan's first point and argues in addition that the trial court abused its discretion by (1) arbitrarily restricting Legere's examination of a government witness and (2) denying a continuance to permit the production of a witness sought by the defense. We find that no error was committed and affirm the judgments of conviction.

Each of the counts on which defendants were convicted involved a specific mailing, a specific use of telephone or telegraph or a specific interstate transportation of securities consummated in aid of a single scheme to defraud. This scheme was in essence a stratagem for purchasing a bank with the bank's own assets. Only O. Henry could do full justice to the plot. We attempt a brief sketch of its main outlines based on facts that might reasonably have been accepted as true by the jury.

In June 1960, Freeling was president of the Capitol Hill State Bank in Oklahoma City, an apparently flourishing suburban savings bank. Houlihan was president of the Midwestern Security Corporation (hereafter "Midwestern Security"), a holding company, and its subsidiary, Midwestern Security Life Insurance Corporation (hereafter "Midwestern Life"). Midwestern Security and Midwestern Life, whose principal offices were in Dallas, were experiencing financial difficulties. Houlihan was also a member of the Executive Committee and Chairman of the Board of the Grand Bahama Bank and Trust Company, Ltd. (hereafter "Grand Bahama Bank" or "Bahama Bank"). Legere was the President and a director of the Bahama Bank. The Government does not claim that the organization of the Bahama Bank in late 1959 and early 1960 was part of the scheme to defraud. At the time of the transactions related in the indictment, however, that bank's physical plant consisted of two empty rooms in a building in Freeport, Grand Bahamas, and its sole assets were less than $1000 in cash and 583,334 shares of stock in Midwestern Security, for which there was no ready market.

On July 1, 1960, Freeling obtained from the majority shareholders in the Capitol Hill State Bank an option to purchase their shares for a total amount of approximately $725,000. After several unsuccessful attempts to borrow the necessary capital, Freeling was eventually introduced to Houlihan and Legere by James W. Jackson, a loan broker.

Houlihan and Legere told Freeling that they were interested in acquiring a bank through which they could funnel business to the Bahama Bank. They asked Freeling how much cash deposit the Capitol Hill State Bank could make in the Bahama Bank if they were to lend Freeling the money that he needed to purchase the shares. Freeling told them that under the Oklahoma reserve requirements the Capitol Hill State Bank could probably deposit between $300,000 and $500,000 outside the state. Houlihan and Legere expressed little interest in making the loan because of the small size of the potential deposits.

The discussions continued the next day. At that time Legere told Freeling that the Bahama Bank was also interested in obtaining the bonds of the Capitol Hill State Bank for safekeeping as it would add to their prestige in the eyes of other banks.¹ Houlihan then told Freeling that they were willing to make the loan if, as a result, the Bahama Bank could obtain a cash deposit of $300,000 to $400,000 from the Capitol Hill State Bank as well as the deposit of all of its bonds for safekeeping. Houlihan assured Freeling that arrangements had been made to perform the safekeeping function by redepositing the bonds in the Hanover Bank in New York City.

Further discussion resulted in an agreement that Houlihan would purchase the Capitol Hill shares but that Freeling would have an option for three years to buy the shares from Houlihan. A separate contract guaranteed Freeling six years employment with designated salary increases. Freeling then arranged with the selling shareholders for payment to be effected by a sight draft on the Hanover Bank in New York City accompanied by the stock certificates, which were to be surrendered on payment of the draft. On July 8, 1960, such a draft was forwarded to the Hanover Bank for collection.

Legere meanwhile was making the necessary preparations in New York.

On a number of occasions during the spring of 1960, Legere had spoken with John Andren, a Vice-President at the Hanover Bank in New York, about the formation of the Grand Bahama Bank and the possibility that Hanover might serve as a correspondent bank for the Grand Bahama Bank.

On July 11, 1960, Legere called Andren and told him that a draft in the amount of approximately $700,000 would be arriving at the Hanover Bank and that he, Legere, would put Hanover in funds to meet this draft.

Shortly afterwards Legere called Andren again and learned that the draft had arrived and required payment on presentment. Legere told Andren that he had expected three days to pay the draft. At Legere's request the Hanover Bank wired its Oklahoma City correspondent that Legere desired a three day extension. Houlihan explained to Freeling in Oklahoma City that his contact in the Hanover Bank was on vacation and Freeling received approval for the extension from the selling shareholders. Instructions were wired to the Hanover Bank extending the time for payment to July 14th.

On July 11, 1960, the date of these wires, the Hanover Bank had no funds on deposit in the name of Legere, Houlihan or the Grand Bahama Bank. In fact, it was not until July 13th that Legere opened an account at the Hanover Bank in the name of Grand Bahama Bank. At that time he told the Hanover officials that he expected a letter or package to arrive at Hanover for him and that it would provide a means of paying the outstanding draft.

That package, addressed to Legere as President of the Grand Bahama Bank, arrived at the Hanover Bank during the late afternoon of July 13th and contained approximately $500,000 in Government bonds and $173,000 in municipal bonds mailed to New York by the Capitol Hill State Bank for safekeeping pursuant to Freeling's understanding with Houlihan and Legere. These bonds had been collected during the afternoon of July 11th from other Oklahoma City banks, where they had been on deposit for safekeeping.

Upon receiving the package Legere inventoried the bonds. He complained about the inclusion of the municipal bonds, which could not be sold for immediate cash. The remaining bonds were insufficient to pay the $724,000 draft and complete the stock purchase. After a telephone conversation with someone in Oklahoma City, whom the jury could reasonably have concluded to be Houlihan, Legere told Hanover officials that additional securities would arrive in New York on the 15th. Legere directed Hanover's securities department to sell the $500,000 in Government bonds and to place the municipal bonds in a safekeeping account.

Houlihan called Freeling on the morning of July 14th and prevailed upon him immediately to wire $250,000 to the Grand Bahama account at Hanover and to forward the rest of the available bonds.

The $250,000 wire transfer arrived at the Hanover Bank on the afternoon of July 14th. Legere then authorized the Hanover Bank to pay the $724,000 draft out of the proceeds of the wire transfer and the sale of the Government bonds, thus consummating the purchase of the Capitol Hill State Bank.

When the second shipment of bonds reached New York thereafter, $550,000 in Government bonds were converted into cash and an additional $89,000 in bonds were deposited for safekeeping. At Legere's direction $460,000 was transferred to two banks in Dallas for the account of Midwestern Life and Midwestern Security, which subsequently used a portion of those funds to discharge certain outstanding obligations.

On July 25, 1960, the Federal Deposit Insurance Corporation, which was aware of the change of control and was concerned that something might be wrong with the bond account, commenced a special examination...