United States v. Mackay, No. 73-1328

• Decision Date: 06 December 1973
• Docket Number: No. 73-1328,73-1329.
• Citation: 491 F.2d 616
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Richard MACKAY and Chester Brewer, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

491 F.2d 616 (1973)

UNITED STATES of America, Plaintiff-Appellee, v. Richard MACKAY and Chester Brewer, Defendants-Appellants.

Nos. 73-1328, 73-1329.

United States Court of Appeals, Tenth Circuit.

Argued and Submitted October 16, 1973.

Decided December 6, 1973.

Rehearing Denied February 4, 1974.

Certiorari Denied April 29, 1974.

COPYRIGHT MATERIAL OMITTED

Robert G. Mahony, Atty., Dept. of Justice (C. Nelson Day, U. S. Atty., D. Utah, on the brief), for plaintiff-appellee.

Philip I. Palmer, Jr. of Palmer, Palmer & Coffee, Dallas, Tex. (Jimi Mitsunaga of Mitsunaga & Ross, Salt Lake City, Utah, on the brief), for defendant-appellant Richard Mackay.

William F. Billings of Johnson, Guthrie & Billings, Dallas, Tex., for defendant-appellant Chester Brewer.

Before PICKETT, SETH and DOYLE, Circuit Judges.

Certiorari Denied April 29, 1974. See 94 S.Ct. 1996.

WILLIAM E. DOYLE, Circuit Judge.

The cause before us is a criminal prosecution in which the defendants Mackay and Brewer were charged with and convicted of violation of the mail fraud and securities fraud statutes. They were charged in nine counts with violation of 18 U.S.C. § 1341, using the mails to defraud, and in six counts of violating 15 U.S.C. § 78j(b) and 15 U.S.C. § 78ff. The jury convicted on all counts. The judge sentenced each of the defendants to one year on each of the 15 counts, or a total of 15 years to run consecutively, and fined each of them $27,000.

There are numerous allegations in Count I, the definitive count of the indictment, but the basic facts which are relied on by the government to establish the fraud are those pertaining to the obtaining of control of Federated Security Insurance Company and Transwestern Life Insurance Company and the stripping of Federated of its assets for the purpose of purchasing its stock. The defendants' corporation, Kaymac Industries, Inc., was used for the purpose of negotiating and acquiring the mentioned interests. The indictment charged the defendants with conceiving a scheme to defraud the policyholders, claimants, creditors and minority shareholders of Federated by borrowing $3,000,000 from Dorsey and Company, a New Orleans, Louisiana brokerage firm.

The basic facts surrounding the execution of the scheme are not disputed. Dorsey and Company advanced $3,000,000 for a very short period of time to permit the purchase of 519,400 shares (93 percent) of Federated stock to be transferred to Kaymac corporation. Soon after the stock was transferred the assets of Federated were assigned to Dorsey and Company. This occurred during the latter part of July 1969. The total purchase price was $3,000,000. This sum was paid in cash to one H. Smith Hagan, President of Oregon National Life Insurance Company, the parent company of Transnational Service Corporation which owned the controlling stock of Federated. As part of the transaction, Hagan received an additional $790,000 in mortgages owned by Federated for his sale to Kaymac of the block of Transwestern stock he held.

Dorsey and Company had insisted that the assets of Federated which Mackay had authorized Dorsey to sell had to be replaced, and so in July 1969 an arrangement was made with a New York company, United Housing Corporation of New York, to purchase 4.5 million dollars in government mortgages. In turn, these mortgages were reassigned to United as security for the sale and Brewer and Mackay executed promissory notes for 4.5 million dollars and at the same time obligated Federated to repurchase the notes in the event of default by Kaymac, the primary obligor, in the purchase of the mortgages.

On July 30, 1969, the purchase of the Federated stock was completed for $3,000,000 in cash which was advanced temporarily by Dorsey and Company. Following this closing Dorsey sold the portfolio of Federated and recouped the $3,000,000 plus interest. Federated received back $531,000 of the excess from the sale of the bonds. Dorsey and Company received a very substantial commission. Most of the $531,000 just mentioned was used by defendants to purchase Transwestern stock for Kaymac.

The defendants maintain that as a result of all these financial maneuvers Federated had not suffered; that its assets had actually increased. They also point to the fact that the exchange of assets was approved by the Insurance Commissioner for the State of Utah. The difficulty is that Federated was legally responsible to pay for the mortgages purchased, and Federated's title was a naked legal title which was wholly lacking in equity and in substance.

Apart from this alleged scheme to defraud there are many further allegations in the indictment showing specific dispositions of cash of Federated to pay obligations of Kaymac and of the defendants personally.

The briefs contain numerous contentions. These contentions include 1) the question of sufficiency of the evidence to support the various allegations in the indictment; 2) the alleged denial of a speedy trial; 3) the alleged errors in giving and failing to give instructions; 4) it is also argued that the remarks of the trial judge during the trial constituted reversible error; and, finally, it is argued that the sentences were improper.

I. SUFFICIENCY OF THE EVIDENCE

In considering whether the evidence is legally sufficient, it must be viewed in a light most favorable to the prosecution. The evidence is not to be weighed nor is it permissible for this court to consider the credibility of the witnesses. The essentials of mail fraud are proof of a scheme to defraud plus the use of the mails to execute or further this scheme or design. The offense of securities fraud is quite similar in that it also calls for proof of a scheme or design to defraud incident to the purchase or sale of a security. Here again, there must be the use of an instrumentality of interstate commerce or of the mails in furtherance of that scheme or design. The jurisdictional basis is, of course, the use of the mails or an instrumentality of commerce and as such each mailing is regarded as a separate crime even though it relates to essentially the same fraudulent scheme.¹ It is also fundamental that an accused need not carry out the mailing or use of an instrumentality of commerce. If he causes it to be carried out by setting forces in motion which foreseeably result in use of the mails, his action is sufficient. See Marvin v. United States, 279 F.2d 451 (10th Cir. 1960).

From a consideration of the evidence briefly sketched above, it is amply clear to us that Mackay, acting through Kaymac Industries, conceived a scheme to gain control of Federated by using its own assets for the purpose of purchasing its stock and for the purpose of purchasing for Kaymac stock in Transwestern. It is also clear that he used the assets of Federated to pay debts of Kaymac and to pay his own debts.

There is other fraudulent activity. It was represented to the broker who sold the Federated assets that these assets were being replaced when in fact the replacement was an insubstantial transaction since Federated was required to somehow repay Kaymac for the purchase of the replacement assets of the mortgages.

The evidence also establishes that Brewer was a participant. He was present during the time period alleged in the indictment, either performing some steps himself or participating with Mackay. Although the evidence at trial was circumstantial, the inferences to be drawn from the basic facts strongly supported the existence of a design to obtain Federated assets for the purpose of making available cash to Mackay to the detriment and prejudice of the minority shareholders and the claimants and shareholders of Federated. The use of misrepresentation and the withholding of information to carry out the fraudulent purposes were adequate. The hope or even the belief that these manipulations would ultimately succeed is, of course, not a defense. Sparrow v. United States, 402 F.2d 826 (10th Cir. 1968). Furthermore, the evidence establishes the uses of the mails or instrumentalities of commerce incident to the carrying out of the scheme.²

II. THE ALLEGED SPEEDY TRIAL DEPRIVATION

The indictment was returned on July 23, 1971, and the trial took place in December 1972. The defendants did not demand a trial. However, the defendant Mackay moved to dismiss the indictment just prior to the trial on December 1, 1972. In that motion he alleged prejudice growing out of the delay between the time that the offense was alleged to have been committed and the time of trial. He stated that the period was two years. He also alleged prejudice due to delay in bringing the case to trial for a period of 18 months. He now maintains that some witnesses who would have purchased the Federated and Transwestern corporations had been lost. This fact does not appear anywhere in the record and therefore is not entitled to any consideration.

The cause was set for trial on two occasions and the second time neither the government nor the defendant was ready and both joined in the motion for a continuance.

The standards prescribed by the Supreme Court in Barker v. Wingo, 407 U.S. 514, 92 S.Ct. 2182, 33 L.Ed.2d 101 (1972), are 1) the length of the delay; 2) reasons for the delay; 3) whether the defendant asserted his right; and 4) whether there was actual prejudice. These, of course, are not exclusive but are to be considered in relationship to any other evidence that might be relevant.

The length of time is not great in view of the fact that the cause is a complex mail fraud-securities fraud prosecution which calls for extensive and careful organization and preparation. The defendant, as noted above, did not assert his right until it came time to go to trial. In view of this, the inference to be drawn is that his main purpose was to make a record. In short, there are manifest reasons for the delay in terms of the difficulty of the task involved.

Finally, we see no prejudice to the defendants. Accordingly,...