United States v. Kane

• Decision Date: 09 July 1965
• Citation: 243 F. Supp. 746
• Parties: UNITED STATES of America, v. William F. KANE and Myron Freudberg, Defendants.
• Court: U.S. District Court — Southern District of New York

243 F. Supp. 746

UNITED STATES of America, v. William F. KANE and Myron Freudberg, Defendants.

United States District Court S. D. New York.

July 9, 1965.

COPYRIGHT MATERIAL OMITTED

Robert M. Morgenthau, U. S. Atty. for Southern District of New York, New York City, for United States of America; Paul R. Grand, Asst. U. S. Atty., of counsel.

Rogge, Wright, Rogge & Wiener, New York City, for defendant William F. Kane; O. John Rogge, New York City, of counsel.

W. A. Newcomb, New York City, for defendant Myron Freudberg.

WEINFELD, District Judge.

The defendants William F. Kane and Myron Freudberg are charged in a three count indictment with two substantive violations of, and conspiracy to violate, Sections 5(a) and 24 of the Securities Act of 1933.¹ Count 1 charges that defendants conspired to violate the Act by directly and indirectly using the mails or other interstate facilities to sell unregistered shares of American Dryer Corporation, of which Kane was then president. Count 2 charges that on or about November 10, 1959 the defendants, directly and indirectly, caused to be carried through the mails and in interstate commerce 22,000 shares of such unregistered stock for the purpose of sale and delivery after sale. Count 3 charges a similar transaction on November 23, 1959, this time involving 12,000 shares of unregistered American Dryer stock attached to a sight draft.

The defendants each move to dismiss counts 1 and 2 on the ground that prosecution is barred by the five-year statute of limitations.² Kane moves to dismiss the entire indictment on his claim that he obtained immunity from prosecution under Section 22 of the 1933 Act.³

Freudberg also seeks dismissal of the entire indictment on the additional grounds of lack of venue and abuse of process amounting to a deprivation of his right to the effective assistance of counsel and his right against self-incrimination. He further seeks suppression and return of certain evidence obtained from him. The Court has separately disposed of defendants' motions for bills of particulars and for discovery and inspection of documents.

I. Statute of Limitations and Venue.

On the face of the indictment, returned on November 9, 1964, all twenty-two overt acts set forth in count 1, the conspiracy count, occurred within the statutory period, although most are just under the wire. Defendants, however, offer affidavits to establish that twenty-one of these acts occurred beyond the limitation period, that is, before November 9, 1959. Overt act 1, for example, alleges that on or about November 10, 1959 the defendants caused the delivery of 22,000 shares of American Dryer stock to Birnbaum & Co. But defendants contend that overt act 1 was a consummated sale, and that the sale, transfer, payment, delivery and any other incidents involving use of the mails or means of interstate commerce were completed no later than November 6, 1959. Moreover, they allege that although overt acts 2 through 21 occurred on various dates between November 10 and November 20, 1959, they relate to separate sales by Birnbaum & Co. of 21,000 of the aforementioned shares; accordingly, that such sales, having been made by Birnbaum & Co. as principal for its own account and without defendants' participation, cannot be attributed to them and relied upon to sustain the conspiracy charge.

While the Government has not answered these factual assertions, which seemingly have some documentary support, and indeed has failed to respond to the Court's request that it set out the basis for its claim (crucial also to the second count of the indictment) that matter apparently mailed in Philadelphia on November 6, 1959 was not delivered in New York until four days later,⁴ the fact is that overt act 22 concerns a sight draft and 12,000 shares of stock unrelated to the earlier sale to Birnbaum & Co. and alleges a date, November 23, 1959, within the statutory period. Thus, even accepting as factually correct the defendants' position with respect to the first twenty-one overt acts, the twenty-second act alone is sufficient to uphold the conspiracy count against the contention that it is time-barred.⁵

Freudberg, however, argues that overt act 22 cannot save the conspiracy count because the act was not performed in this District, but in Philadelphia. Here, and the argument applies equally to his attack on the substantive counts, he relies upon the venue provision of the Sixth Amendment and upon a novel construction of Section 5(a) (2) of the Securities Act, which reads:

"(a) Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly —

* * * * * *

"(2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale."

Freudberg contends this statutory language condemns two entirely distinct and separate crimes: one, "to carry," and the other, "to cause to be carried," unregistered stock through the mails or otherwise in interstate commerce, and that these are mutually exclusive crimes and so intended by Congress. According to this analysis, the crime of "carriage" is a continuing one which commences at the place of deposit and continues along the route to the mail's final destination, whereas the crime of "causation" is static, being complete at the time and place where the mailed matter is deposited. Defendant then notes that overt act 22 alleges "causation" only, that "on November 23, 1959 defendants * * * caused the delivery of a sight draft to Morgan Guaranty Trust Company, New York City." Since, on his theory, overt act 22 was committed only in Philadelphia, when and where the draft was placed in the mails, he argues that nothing remains to save the conspiracy count, since under his major premise the first twenty-one counts either come within the limitation bar, or, as already noted, are Birnbaum transactions which cannot be attributed to him and his codefendant either factually or legally. Moreover, since substantive counts 2 and 3 are also couched in terms of "causation," acceptance of this argument would prohibit their prosecution in this District.

The argument is ingenious but unpersuasive. First, to truncate overt act 22 from the other allegations in count 1 is to misread the indictment. The charge is that the November 23 mailing from Philadelphia was but a single act in the chain of events intended to further a conspiracy in which the defendants did "directly and indirectly carry and cause to be carried through the mails * * * unregistered capital stock of American Dryer for the purpose of sale and for delivery after sale." (Emphasis supplied.) Thus, even under defendant's construction of the statute, the conspiracy as alleged encompassed the crimes both of causation and of carriage. And in order to establish existence of the conspiracy, the Government is not required to prove that each of the methods to send confirmation slips to the buyer,¹⁰ allegedly employed to effect its objectives was brought into play. Moreover, since an overt act need not itself be unlawful, there is no requirement that overt act 22 be read in terms of defendant's statutory construction. Instead, it may be construed, without reference to Section 5(a) (2), to charge that defendants on November 23, 1959 sent a letter into this District pursuant to their conspiratorial purpose. So construed, it permits prosecution of the conspiracy in this District.⁶

In any event, count 1 also charges that defendants conspired to "make use of * * * the mails" to sell unregistered American Dryer stock, a violation of subsection (a)(1) of Section 5. This provision says nothing about causation or carriage, but instead makes unlawful the direct or indirect use of the mails or other means of interstate commerce in connection with the sale of securities not registered as required. This subsection is violated when, in connection with the sale of such stock, the mails are used to transmit an offer or other sales literature,⁷ to transport the securities after sale,⁸ to remit the proceeds to the seller,⁹ to send confirmation slips to the buyer,¹⁰ and perhaps even when used in more tangential ways.¹¹ Thus, defendant's theory with respect to the construction of Section 5(a)(2) fails to deal with the issues presented by the conspiracy count, and that count must be sustained.

Counts 2 and 3 also survive defendant's attack, even if they are read to state violations of Section 5(a)(2) alone. In these substantive counts the defendants are charged with causing unregistered securities to be carried through the mails into this District. The deposit of mail in Philadelphia was not, as defendant contends, "the last step in the causation of the delivery of the sight draft"; rather, it was the initial step in an allegedly improper use of the mails, inseparable from the delivery of the mailed matter here in New York City. He who caused the mailing in Philadelphia likewise caused the delivery in this District. As the Supreme Court said in construing the mail fraud statute:¹²

"A letter may be mailed without being delivered, but if it be delivered according to the address the person who causes the mailing causes the delivery. Not only so, but the place at which he causes the delivery is the place at which it is brought about in regular course by the agency which he uses for the purpose."¹³

To adopt defendants' construction of a separate crime of "causing" would limit congressional power and would restrict venue in Securities Act cases. It would mean that one who violated the Act by depositing securities in the mail box destined for out of state delivery would by that very act restrict venue to the district of the mail box, whereas if one violated the Act by carrying the prohibited securities across state lines, he would also carry venue with him through whatever districts he passed....