United States v. Monjar

• Citation: 47 F. Supp. 421
• Decision Date: 06 October 1942
• Docket Number: No. 88.,88.
• Parties: UNITED STATES v. MONJAR et al.
• Court: U.S. District Court — District of Delaware

47 F. Supp. 421

UNITED STATES v. MONJAR et al.

No. 88.

District Court, D. Delaware.

October 6, 1942.

COPYRIGHT MATERIAL OMITTED

Stewart Lynch, U. S. Atty., of Wilmington, Del., for the Government.

Daniel O. Hastings (of Hastings, Stockly & Layton), of Wilmington, Del., for defendants.

LEAHY, District Judge.

Defendants have demurred to the indictment, which contains 25 counts. Counts 1 to 15 and 23 to 24 charge violations of the mail fraud statute, 18 U.S.C.A. § 338. Counts 16 to 22 charge violations of the fraud provisions of the Securities Act, 15 U.S.C.A. § 77q. Count 25 charges conspiracy to violate both statutes, 18 U.S.C.A. § 88.

The grounds of demurrer are divided into two groups. The first challenges the sufficiency of the mail fraud and Securities Act counts on the ground that the indictment fails to allege a scheme to defraud and false or otherwise unlawful pretenses. By the second group, defendants contend that even if such scheme and pretenses are alleged the government has still failed to charge defendants with any unlawful violation of the Securities Act.

1. Sufficiency of Allegations of Scheme to Defraud and Unlawful Pretenses.

The determination of this issue calls for close scrutiny of the allegations of Count 1 of the indictment. All the remaining counts incorporate Count 1 by reference.

In 1928 defendants organized an unincorporated association called the "Mantle Club." In 1933, deciding to make the membership in the club nation-wide, they set up subordinate lodges or districts,¹ each of which was at first subject to the control of a local Board of Governors. Later, the constitution of the Club was amended to provide for a National Board of Governors, consisting of three persons whose terms of office were for life, the successor of any deceased governor being designated by the survivors, ad infinitum. The original three member National Board consisted of defendants Monjar, Cook and Jones. Presently ten members comprise the Board.

In 1933, defendants organized the Key Publishing Company, a New York corporation, to publish a magazine known as the "American Key." This publication was financed by contributions from members of the Mantle Club. Monjar was made editor of the magazine, at a salary of from $500 to $1,500 a month. Jones became president of Key Publishing Company and Cook, its treasurer, each receiving $500 per month salary. The magazine was sold at 25¢ a copy, almost exclusively to the members of the club. Defendants also published two books written by Monjar — "The Code of Ethics" and "Supplement to the Code of Ethics." These were sold to the members of the club at $2.00 a copy, of which Monjar first received an author's royalty of $1.00, and later of 25¢.

After the nation-wide campaign for members had been successfully completed, a representative of the National Board of Governors visited each of the cities in which a district had been set up and selected from the files of the district those members who had "proved they could be trusted and that they were loyal" to defendant Monjar. An officer of the local unit then notified the selected members to attend a special meeting. There, the representative of the National Board of Governors announced that they were not attending a meeting of the Mantle Club, but that, inasmuch as they were gathered together, it would do no harm to discuss the affairs of the club. The speaker would then give a vivid and fictional history of the former activities of defendant Monjar, after which those present were asked to make so-called "PL" loans to Monjar, each member's loan to be limited to a minimum of $30 and a maximum of $200. The loans were to be made in ten equal monthly installments.

The representatives, in addressing the various meetings, made the following false representations:

1. Monjar received no compensation from the Mantle Club.

2. Monjar required money for his living expenses.

3. The loans had nothing to do with the Mantle Club 4. Monjar would put the money received to good use in furthering the affairs of the Mantle Club, and he would organize business enterprises which would operate for the benefit of the persons making the loans, assuring their eventual financial independence.

The indictment charges that the representatives of the National Board of Governors wilfully omitted to inform the persons making the loans that: (1) Monjar was not and would not be financially able to repay the loans; (2) He intended to use part of the loans to settle large claims for unpaid taxes;² (3) He intended to use part of the loans to effect a property settlement on a former wife, and to pay large sums to his present spouse, defendant Josephine T. Monjar; and (4) He intended to use part of the loans to organize other corporations which would be used to obtain fraudulently still further funds from other members of the Mantle Club.

After a number of the "PL's" had been obtained from the members, defendants set up a new system of loans to be known as the "CD" loans. In the solicitation of these loans the following false representations were made:

1. The financial independence of those who had previously made the "PL" loans was assured.

2. Solicitation of the "PL" loans was finished.

3. Persons invited to attend the "CD" loan meetings were to be subjected to a further test.

4. As the financial independence of those attending the "CD" meetings had been assured through their "PL's", they would be given an opportunity, by means of making "CD" loans, to provide for the same financial independence of members of the Mantle Club who resided elsewhere.

Monjar gave no receipt to the memberlenders, for either group of loans, but his local representatives gave receipts signed by themselves as agents. The local representatives periodically transmitted in the mails bank drafts for the proceeds of the loans and various reports showing the amount of each loan made, together with a list of those who did not make loans. The members have been solicited annually since 1934.

Part of the money received from the loans was used to organize and finance several other companies. One of these was the "Golden Braid Costume Company", which was to manufacture and sell to the Mantle Club 50,000 uniforms at $15 each. The National Board of Governors required the local districts to purchase numbers of such uniforms far in excess of the numbers of members qualified to wear them. The Golden Braid Costume Company paid large salaries and dividends to defendant Mrs. Monjar and to other relatives of Monjar.

Other corporations formed were the American Business Management Corporation, the American Business Research Corporation, the American Distributing Corporation and the Independence Club of America. Defendants controlled these organizations and caused them to enter into contracts among themselves for the purpose of giving them an appearance of business activity. Actually, they performed no services and were mere instrumentalities to siphon additional money into the pockets of defendants.

After the "PL" and "CD" loans were made, the defendants and their agents represented to the persons who had made the loans that Monjar had developed plans to make the lenders financially independent but that the plans had not been put into operation because of high income taxes and the present world situation. They assured them, however, that the plans would be in operation in a short time. All this, the indictment charges, was false.

To be secure from attack by demurrer the indictment must describe the scheme to defraud and other elements of the offense with sufficient particularity to enable defendants properly to prepare their defense, Leche v. United States, 5 Cir., 118 F.2d 246, certiorari denied 314 U.S. 617, 62 S.Ct. 73, 86 L.Ed. 496; Hart v. United States, 5 Cir., 112 F.2d 128, and after judgment to plead a conviction or acquittal in bar to a second prosecution for the same offense. Hagner v. United States, 285 U.S. 427, 52 S.Ct. 417, 76 L.Ed. 861; Wong Tai v. United States, 273 U.S. 77, 47 S.Ct. 300, 71 L.Ed. 545; United States v. Empire Hat & Cap Manufacturing Co., et al., D.C., 47 F.Supp. 395. I believe this indictment passes the test by setting out in detail the scheme to be relied on and the false representations.

Defendants in support of the demurrer analyze each paragraph of the indictment which describes the scheme and make comment such as "This is not fraudulent" or "This is not, in itself, a fraudulent act." It is not necessary that each paragraph of a count describe an offense. If the allegations as a whole describe the scheme to defraud, the requirements of criminal pleading are met. United States v. White, 2 Cir., 124 F.2d 181.

Defendants in discussing certain of the false promises alleged in the indictment, argue "if the promise is made in good faith when the contract is entered into, there is no fraud." There is no dispute as to this rule of law. Amer.Jur., Vol. 13, pp. 887, 888. But it is a matter of defense and need not be negatived in the indictment. Moreover, after describing the false representations, the indictment states that defendants "then and there well knew" that the representations were false. Cochran v. United States, 8 Cir. 41 F.2d 193; Hass v. United States, 8 Cir., 93 F.2d 427.

In further support of their demurrer, defendants argue that the allegations of the indictment are "illogical." In fact, the scheme here alleged might be denominated as "fantastic"; but this is no ground for demurrer. While it is difficult to believe that the victims could have accepted and acted upon the alleged statements of defendants, this astounding credulity does not relieve the wrongdoers. Tucker v. United States, 6 Cir., 224 F. 833, certiorari denied 241 U.S. 668, 36 S.Ct. 552, 60 L.Ed. 1229. It may be that the averred scheme would not have deceived a person of ordinary intelligence, but the statutes here involved were enacted for the very purpose of protecting...